Donald Trump is shaking things up again. This time, he’s talking about raising the federal minimum wage. In a Sunday interview with NBC, Trump called the current rate of $7.25 per hour a “very low number.” When pressed, he said, “There is a level at which you could do it, absolutely. I would consider it. I’d want to speak to the governors.”
It’s a bold move for Trump and one that could borrow a page from California Governor Gavin Newsom’s playbook. Newsom has been a leader in setting wage standards, most notably with the $20 minimum wage law for fast-food workers, which went into effect on April 1, 2024. While critics warned of unintended economic consequences, a recent Harvard study offers evidence that wage hikes may not be as harmful as commonly believed.
The study, which analyzed data from over 3,400 fast food workers in California, along with comparisons to retail workers in California and fast food employees in other Western states, found compelling results:
- Significant wage increases: Hourly wages for California fast food workers increased by at least $2.50 immediately after the law took effect. The percentage of workers earning less than $20 per hour dropped by 60 percentage points.
- No cuts to hours or staffing: Contrary to fears that businesses would reduce hours or understaff to offset costs, the study found no evidence of such measures. Weekly work hours remained stable, and understaffing levels appeared to ease.
- No reductions in benefits: Employers did not respond to the wage hike by cutting fringe benefits like health insurance, paid sick time, or retirement plans. None of the seven major types of benefits studied saw a decline.
This data aligns with earlier research on the effects of minimum wage increases, particularly David Card and Alan Krueger’s 1994 study on New Jersey’s wage hike from $4.25 to $5.05. To isolate the impact of the increase, they compared fast food restaurants in New Jersey to similar establishments just across the border in Pennsylvania, where the minimum wage remained unchanged. This “matching” approach allowed them to separate employment changes caused by the wage increase from those that would have occurred naturally. Card and Krueger found no evidence that the wage increase reduced employment in New Jersey relative to Pennsylvania. While initial criticisms questioned the reliability of their phone survey data, the authors later validated their results using more accurate administrative payroll data.
Card and Krueger’s work paved the way for more advanced studies on minimum wage effects. Economist Arindrajit Dube and his colleagues expanded on this approach by analyzing neighboring counties across state borders nationwide. By comparing each pair of bordering counties with differing minimum wages, Dube, Lester, and Reich (2010) conducted a more comprehensive and robust analysis. Their findings reinforced the conclusion that modest minimum wage increases generally have little to no negative effect on employment, challenging claims that higher wages significantly reduce job growth.
Of course, challenges remain. Even with higher wages, the study highlights that many California fast food workers face underemployment. One-third of workers reported wanting more hours, and two-thirds still deal with unpredictable scheduling, receiving less than two weeks’ notice for shifts. These issues show that while wage increases are crucial, they are not a silver bullet.
Trump’s interest in a wage hike comes at a pivotal moment. While California’s $20 minimum wage law provides a case study of success, it also offers lessons on areas for improvement. A federal approach, as Trump suggests, would likely need flexibility to account for regional economic differences. The cost of living in California differs greatly from states like Mississippi or Wyoming, where a $20 minimum wage might not be sustainable for businesses. Whether Trump can get Republicans onboard with his plan is another question all together.
