New report argues policymakers should adjust minimum wages for inflation to improve affordability: California’s Fast Food Council used as a case study

A new Economic Policy Institute report makes the case for automatically adjusting minimum wages for inflation - and uses California's Fast Food Council as a case study.

Two years ago, the California Fast Food Council-composed of worker, industry, and government representatives-instituted a $20 minimum wage for workers at large chain fast-food restaurants. But the Council has not raised the minimum wage further, and inflation has steadily eroded fast-food workers' real wages since then. The authors argue that a 3.5% raise-the maximum adjustment the Council can recommend-would be a necessary yet modest step because it will only partially offset the average 4.2% cost of living increase since April 2024.

In fact, lower-income households have faced higher inflation than the overall inflation rate, largely because housing has been a higher share of their budgets. This means that indexing based on the overall inflation rate would fail to fully restore the affordability lost to fast-food workers since the enactment of the $20 wage standard, making such an adjustment even more modest-and necessary.

One impediment to this adjustment is opposition from fast-food restaurant operators, who argue that raising workers' pay to $20 harmed their businesses and that they cannot absorb any further increases. However, the weight of empirical evidence shows that the $20 minimum wage has raised wages while not causing significant job loss. And compared with the initial setting of wage standards, indexed changes are very small and therefore unlikely to push up prices. Failing to adjust for inflation is essentially a backdoor method for unraveling the wage standard that policymakers passed into law.

"Automatically adjusting minimum wages for inflation is necessary for protecting affordability for low-wage workers," said Josh Bivens, EPI chief economist and co-author of the report. "The California Fast Food Council should prioritize a cost-of-living adjustment in 2026 to prevent rising prices from erasing workers' gains. A failure to regularly index for inflation provides a windfall to low-wage employers at the expense of their frontline employees."