Over the last year, historically strong wage growth has failed to keep pace with skyrocketing inflation, leaving millions of low- and middle-income Americans struggling to make ends meet.
Beginning on January 1, the lowest-paid workers will make up a significant portion of the lost ground.
According to a report provided exclusively to USA TODAY by the National Employment Law Project (NELP), a worker advocacy group, twenty-one states and 41 cities and counties are planning to raise their minimum wages on or around January 1.
For the first time, Massachusetts and Washington will join California and much of New York in establishing a $15 hourly wage floor.
According to NELP, because some governments will act later in the year, a total of 27 states and 59 cities and counties – a record 86 jurisdictions – will raise their base pay sometime in 2023.
What effect does inflation have on the minimum wage?
Annual minimum wage increases typically provide the largest increases to workers in states or localities, as part of a planned series of bumps over several years.
Other states raise their minimum wages by small amounts, perhaps 20 cents to 50 cents an hour, because they are indexed to annual inflation, which has averaged 1% to 2% over the past dozen years.
However, as the U.S. economy reopened after the pandemic, inflation as measured by the Consumer Price Index (CPI) began to soar in spring 2021, reaching a 40-year high of 9.1% this past June before easing to a still elevated 7.1% in November.
As a result, many of the 11 states and 31 cities and counties enacting CPI-triggered minimum wage increases around New Year’s Day will provide significant raises to workers.
The minimum wage in Arizona will rise from $12.80 to $13.85; in Colorado, from $12.56 to $13.65; and in Maine, from $12.75 to $13.80, all increases of more than 8% based on CPI increases in those states.
Because of inflation indexing, most workers’ base pay in Seattle will increase from $17.27 to $18.69, the highest among localities.
According to Lathrop, the increases will not provide workers with a financial windfall, but will simply allow them to keep up with rising prices.
“It will help workers maintain a minimum standard of living,” Lathrop says. “It will keep people from having to make difficult choices,” such as whether to buy food or medicine.
Other states offer a modest raise as part of a multi-step increase in the minimum wage. In Delaware, the minimum wage will rise from $10.50 to $11.75; in Illinois, it will rise from $12 to $13; and in Virginia, it will rise from $11 to $12.
Lathrop points out that Nebraska, a Republican-controlled state, hasn’t raised its minimum wage since 2014. The Cornhusker State, on the other hand, will raise its base pay from $9 to $10.50 on January 1st, the first of a series of steps that will bring it to $15 by 2026. Last month, voters approved a ballot initiative.
Which states have a $15 per hour minimum wage?
More states are joining the growing $15-an-hour club. Pay floors in Massachusetts will rise to $15 from $14.25 on January 1 and in Washington State to $15.74 from $14.49. Connecticut will expand the contingent to five states in July, when the pay floor rises to $15 from $14.
Delaware, Florida, Illinois, Maryland, New Jersey, Rhode Island, Virginia, and Nebraska will join the $15 faction by 2026. Hawaii will arrive by 2028. That’s 14 states with roughly 41% of the US workforce earning or nearing $15 per hour.
Another 36 cities, including more than a dozen in California, as well as Denver, Minneapolis, and Seattle, are already at $15 and will surpass it in less than two weeks.
When Fight for $15, an alliance of fast-food and other low-wage workers, began demanding it as part of nationwide walkouts in 2012, it was widely regarded as a pipe dream.
“$15 remains a very important target rate,” says Lathrop. “It’s just a starting point.”
What effect does the minimum wage have on inflation?
Many restaurants and other establishments that employ low-wage workers disagree. They argue that sharp increases in the minimum wage will only exacerbate inflation as employers raise prices to offset higher labour costs.
Federal Reserve Chair Jerome Powell has noted that inflation for goods such as furniture and used cars has slowed, but not for service businesses such as restaurants, where labour costs account for the majority of their expenses.
Those price increases, he says, must abate before the Fed pauses its aggressive rate hike campaign, which has increased consumer borrowing costs and hammered stocks.
“Powell is correct,” says Michael Saltsman, managing director of the Employment Policies Institute, a restaurant industry-backed think tank. “In any economic environment, an extreme wage mandate makes no sense. It’s insane to go ahead with it right now. Small restaurant owners, in particular, will pay the price.”
However, according to Dante DeAntonio, an economist at Moody’s Analytics, minimum wage workers make up a relatively small share of the workforce, and their pay increases are likely to have little effect on overall inflation, especially given the recent strong wage growth in the United States.
“I’m not sure this adds that much fuel to the fire,” says DeAntonio.
What effect does raising the minimum wage have?
According to the left-leaning Economic Policy Institute, the state minimum wage increases around New Year’s Day will affect 3.4 million workers currently earning base pay and another 5.4 million who make slightly more but will benefit from ripple effects within a business. The figures do not include increases in city and county minimum wages.
Meanwhile, according to the Labor Department’s Employment Cost Index, private-sector wages and salaries rose 5.2% year on year in the third quarter.
What is the federal minimum wage in the United States?
The increases come as the federal minimum wage has remained frozen at $7.25 per hour since 2009, with Republicans in Congress repeatedly blocking efforts to raise it.
More than 30 states, accounting for more than 60% of the US workforce, have higher pay floors than the federal government.