Living Wage: Its Impact on Jobs and Prosperity

“Extractive capitalism” is a slippery label that tends to take on the meaning of whatever the speaker wants it to convey. Rep. Ro Khanna (D–Calif.) uses the phrase as a scare tactic to justify the economic elixir he promotes in the form of a $25 “living wage” bill that he and fellow Democrats have introduced. Fortunately, the measure is not only unlikely to pass in the current Congress; it is nearly as slippery as the bogeyman it conjures. All things considered, it remains a poor policy.

Slippery Language and Moving Targets

“I co-signed landmark legislation aimed at raising the minimum wage to $25,” Khanna wrote on X in April. “As someone who taught economics at Stanford, here is why this makes sense. The real minimum wage was $14 in 1968. Today it is about half that value, yet productivity has risen 2.5 times. Instead of pursuing extractive capitalism, we need a free-market system that pays workers what they are worth.”

Khanna’s boast about having taught economics at Stanford does a lot of work here. He holds a bachelor’s degree in economics and once served as a visiting lecturer—an arrangement often granted to political figures—in the period after his tenure in the Obama administration as he prepared for a congressional bid.

Still, Khanna has some grounding in economics, which may help explain why he advocates a $25 minimum wage while the Living Wage for All Act would not deliver such a level until the 2030s. In truth, the bill aims to “place the Federal minimum wage on a durable path toward a living wage by ensuring that it reaches a level equal to two-thirds of the national median hourly wage.”

According to the Bureau of Labor Statistics (BLS), the national median hourly wage was $24.51 in May 2025. Two-thirds of that figure comes to a bit over $16 per hour. That is well above the federal minimum of $7.25, though it falls short of the minimums in roughly half the states. Not many workers actually earn only the minimum wage.

Minimum Wage Workers Are Mostly Young, Unskilled, and Part-Time

In 2024, the BLS noted that 80.3 million workers aged 16 and older were paid hourly, constituting 55.6 percent of all wage and salary workers. The share earning at or below the federal minimum wage was about 1.0 percent in 2024, little changed from the previous year. Wages are determined by the market for most people, and labor commands a higher price than the minimum wage in the vast majority of cases.

The BLS also notes that minimum-wage workers tend to be young, disproportionately lack high school diplomas, and that part-time workers earn the minimum wage or less at a rate about four times higher than full-time workers. Thus, as has long been the case, most individuals at the bottom of the wage scale hold entry-level, part-time, low-skill positions.

Khanna argues that the real minimum wage was $14 in 1968, which he portrays as doubling the current federal floor. But the Cato Institute’s Ryan Bourne and Nathan Miller contend that Khanna chose 1968 for a reason. That year’s minimum wage represented the highest real wage floor in U.S. history. If one averaged across the entire 90-year history of the federal minimum wage, the figure would be only about $9.92.

Even that figure overstates the gap, since the population-weighted effective minimum wage—the maximum of each locality’s federal, state, or local floor averaged across all working-age Americans—stood at $12.13 in January 2026.

The federal minimum wage remains low, but it is largely a relic in practice. It has largely been overridden by market wages and by state and local rules. When it does apply, it mostly affects teenagers starting their first jobs and building work experience that will raise their value in the labor market over time.

That leads to another point. Khanna argues that workers deserve a higher minimum wage because “productivity has increased 2.5x.” Yet Bourne and Miller point out that productivity gains are averaged across the entire workforce, not necessarily for entry-level employees. “Minimum wages do not bind the average worker,” the Cato scholars observe. “They affect the lowest-paid workers who cluster in sectors with productivity levels, and sometimes productivity growth, well below the economy-wide average.” In some industries, productivity has actually declined. Demanding higher minimum wages in those sectors, even as productivity falls, risks layoffs or reduced hiring.

For example, the BLS notes that nearly three-quarters of workers earning the minimum wage or less in 2024 were employed in service occupations, primarily food preparation and serving-related roles. These positions are particularly susceptible to automation through kiosks for ordering and tabletop payment consoles.

Job Losses and Higher Costs Resulting From Government-Mandated Wages

In a 2017 paper for Labour Economics, Grace Lordan of the London School of Economics and David Neumark of the University of California–Irvine warned that increasing the minimum wage significantly reduces the share of automatable jobs held by low-skilled workers and raises the likelihood that those in automatable roles become unemployed or relegated to less favorable positions.

Last year, economists reported that California’s raise of the fast-food minimum wage from $16 to $20 per hour cost about 18,000 jobs. They also suggested the hike may have dampened employment in full-service restaurants, possibly as businesses anticipated further increases in the sector’s wages.

In a 2023 evaluation of a proposed national minimum wage increase to $17 per hour, the Congressional Budget Office forecast that employment would decline because firms would trim their workforces. The result would be about 0.7 million additional unemployed workers (roughly 0.4 percent of the workforce), along with higher prices for goods and services.

This year, a University of California, Santa Cruz study found that after California raised the minimum wage, franchised fast-food restaurants appeared to raise menu prices by around 8–12 percent. Work hours were reduced, outlets closed, and researchers observed that many fast-food franchises increasingly invested in labor automation as a cost-saving measure.

Even so, Khanna and his colleagues do not propose an immediate nationwide jump to $25 an hour. Yet even a gradual, slower approach would price out many low-skilled and entry-level workers by exceeding the value of their labor. In doing so, his remedy for “extractive” capitalism would become a removal of work and prosperity for a substantial portion of Americans.