In an appearance on “Meet the Press” on NBC News, President-Elect Donald Trump offered his response when pressed about his stance on the federal minimum wage. “It would be nice to have just a minimum wage for the whole country, but it wouldn’t work because you have places where it’s very inexpensive to live, where a minimum wage which is at $8 or $9 might be, you know, might have very little effect because the cost of living in certain places is really low.”
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Some pundits interpreted that to mean that Trump questions whether the U.S. should have a federal minimum wage at all. So, what would happen if the federal government abolished the national minimum wage?
For 99% of Workers: Nothing
As of 2023, the Bureau of Labor Statistics reported just 1.1% of U.S. workers earn the federal minimum wage. The other 99% earn more, due to market forces and state minimum wages.
“The federal minimum wage has become largely irrelevant, remaining at $7.25 an hour since 2009,” observed Chad Gammon, CFP and owner of Custom Fit Financial.
In fact, most states and territories have legislated their own higher minimum wages. Only seven states have either no minimum wage or a lower one than the federal minimum, per the Department of Labor. And there’s a good chance those seven would dust off their own state minimum wage playbook if the federal minimum evaporated.
Only a tiny fraction of the workforce would even have to question whether their wage might decline, if the federal minimum wage disappeared.
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Potential for More Substantive Federal Policies
If politicians spent less time talking about the minimum wage, might they actually implement programs that offer more effective protection for low-wage workers?
“The minimum wage is too often a feel-good mechanism serving politicians touting change,” noted Eric Steffy, founder of Federal Solutions Support. “The federal minimum wage exists for about 1% of the population, which begs the question of whether that 1% might be better served by tangential supports such as Earned Income Tax Credits and other supports for food, housing, and child care that will actually help low-income earners lift their families into self-sufficiency.”
It raises intriguing questions about political lip service versus real impact. The difference, however, is that the federal government would have to pay for those other programs, instead of forcing employers to do so out of pocket.
Delay the Trend Toward Automation
In industries worked by low-skill, low-wage workers, automation and AI have steadily encroached on human labor. However, replacing humans with machines takes time and money, too.
Author and AI specialist Suriel Arellano explained: “One possible upside of abolishing the federal minimum wage is that it could delay the automation of certain industries. If labor costs are lower, businesses might be less inclined to replace human workers with machines. That same logic — applying the right economic incentives — could potentially reduce outsourcing overseas.”
Of course, not all workers would choose lower or stagnant wages over fewer low-skill jobs. Axing the federal minimum wage comes with its share of risks, beyond the risk of lower wages for the relatively few workers still protected by it.
‘Trickle Up’ Damage to the Consumer Economy
Personal consumption drives nearly 70% of the gross domestic product of the U.S. Slash workers’ wages, and you undercut the engine of economic growth.
Milos Eric, cofounder of hospitality job platform OysterLink, sees the hospitality industry suffering in particular. “Lower-paid, demoralized staff would struggle to provide the high-quality service that drives customer satisfaction,” he said. “Lower wages would also decrease consumer spending, directly impacting revenue for restaurants and other service businesses.”
Less discretionary income for some workers wouldn’t just pinch service businesses, but also trim revenues for other consumer-facing businesses, especially those serving lower-income demographics. That could in turn lead to consolidation and some businesses closing their doors.
Weaker Labor Protections in Disputes
The federal minimum wage — and the related labor protection laws built around it — act as a benchmark for labor contracts.
Attorney Paul Koenigsberg of Koenigsberg & Associates pointed to the dangers of simply striking those federal labor laws from the books. “It could create a challenge for workers and employers trying to strike agreements during union negotiations because they would have to rely on state-specific labor laws, which do not offer uniform protection for workers’ rights,” he said. “Worse, employers may use the lack of a federal wage floor to justify lower pay scales, prompting disputes and lawsuits over unfair labor practices.”
Weaker Protections for Citizens and Legal Residents
One of those related federal labor protections is the prevailing wage, designed to protect U.S. citizens from immigrants undercutting their wages.
Elizabeth Ricci, partner at law firm Rambana & Ricci and Adjunct Professor of Immigration Law at Florida State University, explained how the prevailing wage works: “The prevailing wage, which is determined by the federal government via the U.S. Department of Labor, is usually much higher than the minimum wage, and is a specific rate for particular types of work. It varies by required experience and geographic location. To ensure that immigrants are not undercutting their American counterparts, U.S. employers are required to pay the prevailing wage.”
That protects U.S. workers from employers sponsoring overseas workers to come to the U.S. solely so that they can pay them half as much for the same work.
However, it also incentivizes immigrant workers to go through legal channels for immigration and employment. “If these federal wage rules disappeared, it would reduce economic incentives for legal immigration while potentially increasing pressure for unauthorized immigration,” said Ricci.
Ultimately, the federal minimum wage has lost relevance as fewer workers get any benefit from it. While plenty of pundits wring their hands worrying that ditching the federal minimum wage would mean a patchwork of state minimum wage laws, the fact is we’re already living under that quilt. Arellano summed it up succinctly: “Many economists believe a federal policy is just too blunt an instrument for the job.”
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: Trump Says Having Federal Minimum Wage Doesn’t Work: What Could Happen To Your Earnings If It’s Eliminated
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