Nearly 20 states kicked off the New Year with minimum wage increases, but some employment experts warn that doing so could exacerbate inflation levels.
Minimum wage increases across 19 states will boost the paychecks for more than 8.3 million Americans. Washington leads the charge with the highest pay, with a new minimum wage of $17.13 kicking in. Arizona, California, Colorado, Connecticut, Hawaii, Maine, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, Ohio, Rhode Island, South Dakota, Vermont, and Virginia are among the other states increasing wages.
While workers might be happier to see larger paychecks, some experts warn that increasing the overhead costs on companies will likely spur inflation.
“What we’ll probably see is, like any other time, wages are forced to go up, that trickles down to the consumers,” says Mark Kluger, a co-founding partner at Kluger Healey, an employment law firm. “I think we’ll see increased pricing and more inflation in certain industries, […] such as fast food and retail.”
Inflation, which currently sits at 2.7 percent, has tapered down from recent highs seen in years past, but is still shy of the Federal Reserve’s target rate of two percent.
Economists have debated the merits of minimum wage increases for decades. While small companies struggle more with minimum wage increases (since they contend with tighter margins) a 2023 study from UC Berkeley showed that small businesses didn’t absorb those costs. They instead passed them onto customers “with little negative impact.”
“A minimum wage increase doesn’t kill jobs,” Berkeley economist Michael Reich said at the time during the study’s publication. “It kills job vacancies, not jobs. The higher wage makes it easier to recruit workers and retain them.”
But passing costs onto customers might be more difficult to do in an economic environment already contending with price increases from tariffs. Meanwhile, the federal minimum wage remains unchanged, where it continues to stand at $7.25 an hour. The federal minimum wage was first introduced back in 1938, when then-President Franklin D. Roosevelt inked the Fair Labor Standards Act. (The initial minimum wage was, at that time, 25 cents an hour.)
Aleksandar Tomic, a professor at Boston College specializing in economics, adds that the impact on businesses is one that, for the most part, will be fairly uneven, boiling down to what part of the country a company is operating in.
“Right now in Boston, you really cannot hire anybody to work at the existing minimum wage,” he explains. “Everybody’s already paying more than that, so in the areas where the wages are high already, and where the labor is not readily available, the impact will be minimal.”
Those in large cities already paying above the minimum wage won’t likely see much of a change. But companies located in rural regions that pay workers the minimum wage might experience more of a shock when it comes to budgeting.
This, Tomic argues, is a move that in the long-term, could push companies to pursue an existing trend: more automation.
https://www.inc.com/melissa-angell/2026-minimum-wage-increases-inflation/91283564
