Jobs The $25 Wage Plan Could WIPE OUT First

The effect of a very large, federally mandated wage floor turns on scale and bindingness: modest increases often register as marginal in the data, but a nationwide path to $25—eliminating subminimum tiers and phasing in across all employers—moves the policy into a different regime where disemployment risks, business model changes, and automation incentives become central rather than peripheral.

The Short Version

The “Living Wage for All Act” would phase the federal minimum to $25 and end subminimum wages for tipped, youth, and disabled workers, with timetables differing by employer size.
Industry-aligned modeling projects roughly five million fewer jobs if the federal floor reaches $25, with losses concentrated in restaurants, hospitality, and among teens and tipped workers.
Academic literature on smaller, incremental hikes often finds limited average job loss; the evidence turns more negative as increases grow larger and more binding for directly affected workers.
Mechanism matters: a $25 floor compresses low-wage ladders, narrows margins, and accelerates substitution—toward prices, productivity demands, scheduling cuts, and automation—especially for small firms.

What the $25 proposal actually does

Policy design, not rhetoric, sets the stakes. The pending federal legislation would lift the national floor in steps to $25 an hour and abolish subminimum categories, then index the standard to two-thirds of median pay thereafter. It builds a two-track phase-in: large employers are required to reach target levels sooner; smaller employers receive more time to adjust, in some versions stretching toward the late 2030s. The text also removes exemptions for tipped and other subminimum categories, making the floor binding across occupations that historically depended on a lower cash wage supplemented by tips.

This scale and coverage matter for labour markets because they determine the share of workers whose current pay sits below the new floor and therefore how many firms must adjust. The broader and higher the binding threshold, the more the policy compels changes in prices, staffing, or production methods rather than nudging wages at the margins.

What the job-loss models are really saying

One widely cited projection—developed by the Employment Policies Institute—estimates the federal path to $25 would cost 5.01 million jobs, with outsized effects in restaurants, hospitality, and teen employment. It adapts methods used by the Congressional Budget Office, calibrating estimated employment elasticities to the scale of the hike and the share of workers directly affected; in plain terms, it assumes employers cut some hours or positions when the mandated wage outpaces productivity and pricing power.

A fair reading acknowledges the sponsor’s perspective—EPI is industry-aligned—yet the mechanism it invokes is orthodox economics: when the wage floor exceeds the marginal value of certain jobs, firms substitute away from low-productivity labour. That substitution can take the form of higher prices, reduced hours, role consolidation, self-service and automation, or relocation. The model’s absolute number is contestable; its direction of effect under an unusually high, broad mandate is not exotic.

Why past “little to no job loss” findings don’t settle a $25 debate

Minimum-wage research is unusually polarized, but its fault lines are consistent. Many credible studies of modest, incremental increases—often at city or state levels—find small to near-zero average employment effects, especially when measured across entire local labour markets. Reviews associated with the Berkeley tradition emphasize that pattern and report minimal to zero disemployment on average from those smaller steps.

But the literature also shows that as the increase becomes larger and more binding, negative effects become more visible for directly affected groups: teens, the less-educated, and workers in very low-wage sectors. Multiple NBER reviews and IZA syntheses report a preponderance of negative elasticities, with stronger disemployment among those groups and over multi-year horizons. Event studies find large hikes reduce employment in competitive markets while sometimes raising it in highly concentrated ones, reflecting firms’ ability to pass through costs when they face less competition.

Mechanism: how a high, broad floor reshapes decisions

The labour-leisure and capital-labour trade-offs become acute at $25. Consider a full-service restaurant where labour costs are already a third of expenses: removing the tipped wage and lifting the base to $25 compresses front-of-house and back-of-house differentials, pushes servers’ guaranteed cash wage far above historical norms, and requires re-pricing or re-design. Operators respond by raising menu prices, consolidating roles, standardizing service, and adopting technologies—QR menus, ordering kiosks, predictive scheduling—that lift output per labour hour. Some succeed; marginal operators with thin cash buffers and little pricing power close or downshift formats to counter service. The same logic extends to retail, hospitality, and light services, where the choice set is price, productivity, hours, or exit.

Indexation to a share of the median extends this dynamic beyond the endpoint: if the floor chases the median, cost-push pressures become a continuing feature rather than a one-off. That ratchet helps preserve purchasing power but also narrows managerial space to rebuild margins.

Small versus large employers: asymmetry is a feature, not a bug

The proposal phases in faster for large firms and slower for small businesses. That recognizes scale economies in compliance and productivity investment, but it also creates competitive asymmetries. Big-box retailers and national chains can amortize technology and spread risk; they are better positioned to adopt automation, manage scheduling algorithms, and negotiate input costs. Independents face the same wage floor with less pricing power and fewer levers, which is why closures or format changes cluster among small, low-margin firms under aggressive wage floors. Advocates argue the longer runway for smaller employers mitigates harm; opponents reply that the endpoint, not just the slope, is what binds.

Evidence worth separating: scope, magnitude, and who is counted

When studies report “no employment effect,” they often observe net headcounts at the establishment or metropolitan level, where composition effects can mask losses among directly affected workers. Cengiz et al., for example, documented declines in jobs below the new floor offset by gains just above it—netting near zero overall—even as specific worker cohorts lost positions or hours. That is an important welfare distinction: raising pay for those who keep jobs and hours can coexist with reduced access for new entrants, teens, or the least experienced. Evaluations that disaggregate by age, education, and sector are therefore more informative for a policy as large and sweeping as a $25 floor.

Recent natural experiments at $20—such as in segments of fast food—show wage gains with limited near-term employment losses in that narrow context; extrapolating those results to a federal $25 floor that also abolishes subminimum wages is a stretch. The jump in coverage, the heterogeneity of local product markets, and the compounding effect of indexation all argue caution in generalizing.

What it would mean in practice

For workers who remain employed with stable hours, a higher floor materially raises earnings. For firms with pricing power or opportunities to redesign work, the mandate accelerates productivity investment that may have been overdue. But for small, labour-intensive businesses serving price-sensitive customers, a $25 floor tightens margins to the point where substitution—fewer entry-level slots, more part-time schedules, or automation—becomes the rational response. The most credible literature synthesizing large, binding increases points to meaningful employment trade-offs for directly affected groups, even when market-wide totals look muted.

The policy choice, then, is not between “free money” and “doom,” but between competing objectives under real constraints: higher earnings for those who keep jobs and hours versus reduced access and accelerated restructuring for the margins of the labour market. Design levers exist—longer phase-ins, regional indexing, tax credits targeted to small firms, or earned-income supports—to reach a similar earnings goal with fewer disemployment risks. The bill on the table opts for a high, uniform floor and the certainty of compliance over those alternatives.

I have had 25+ job interviews in person and over 50 virtual ones and the only ones that offered me the job were door knocking scams or sub minimum wage phone operator jobs. I have a forklift license and rsa and over 8 years in retail and tech sales. We are fucked

— Melrus (@melroise) August 22, 2026

The bottom line

History is clear about small, incremental minimum-wage hikes: average employment effects are often limited. The proposal to take the federal floor to $25 and eliminate subminimum tiers is not small or incremental. Under that more binding regime, the weight of evidence and straightforward economic mechanism both point toward sizable job and hour losses for directly affected workers—concentrated in low-wage services—even as remaining workers see higher pay. Policymakers who want the income gains without “destroying millions of jobs” should treat phase-in length, regional variation, complementary tax policy, and sector-specific realities as first-order design variables rather than afterthoughts.