Over the past year, historically strong wage growth has not kept pace with rising inflation, leaving millions of low- and middle-income Americans struggling to pay their bills.
From New Year’s Day, the lowest paid workers will make up a good part of that lost ground.
Twenty-one states and 41 cities and counties are poised to raise their minimum wages on or around January 1, according to a report provided exclusively to USA TODAY by the National Employment Law Project (NELP), a group of promotion of workers.
Two states, Massachusetts and Washington, will reach a $15 hourly wage level for the first time, joining California and much of New York.
Because some governments will act later in the year, a total of 27 states and 59 cities and counties — a record 86 jurisdictions — will increase their base pay sometime in 2023, according to NELP.
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“The movement to raise wages continues to gain momentum,” said Yannet Lathrop, NELP senior researcher and policy analyst.
How does inflation affect the minimum wage?
Typically, annual increases in the minimum wage give the biggest increases to workers in states or localities that take a step in a planned series of bumps over several years.
Other states raise their wage levels by small amounts, perhaps 20 cents to 50 cents an hour, because they are indexed to annual inflation, which has averaged 1% to 2% for most of the past a dozen years.
But inflation as measured by the Consumer Price Index (CPI) began to rise in the spring of 2021 as the US economy reopened after the pandemic, reaching a 40-year high year of 9.1% last June before declining to a still elevated 7.1% in November.
As a result, most of the 11 states and 31 cities and counties that enact CPI-triggered minimum wage increases around New Year’s Day will be giving workers significant wage increases.
The minimum wage will rise from $12.80 to $13.85 in Arizona; from $12.56 to $13.65 in Colorado; and from $12.75 to $13.80 in Maine, all gains of more than 8% based on the CPI increase in those regions.
In Seattle, base pay will increase from $17.27 to $18.69 for most workers, the highest among localities, due to inflation indexing.
Rather than providing workers with a windfall, the raises simply allow them to keep up with rising prices, Lathrop says.
“It will help workers at least maintain a minimum standard of living,” says Lathrop. “This will prevent people from having to make tough decisions,” such as whether to buy food or medicine.
Other states are providing a nice raise as part of a multi-step increase in the minimum wage. The wage level will rise from $10.50 to $11.75 in Delaware; from $12 to $13 in Illinois; and from $11 to $12 in Virginia.
Nebraska, a state controlled by Republicans, has not removed the minimum wage since 2014, Lathrop notes. But on New Year’s Day, the Cornhusker State will increase its base wage from $9 to $10.50 in the first of a series of steps that will bring it to $15 by 2026. Voters approved a ballot initiative last month.
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Which states have a $15 minimum wage?
More states are joining the fast-spreading $15 an hour club. On January 1, the floor wages will increase to $15 from $14.25 in Massachusetts and to $15.74 from $14.49 in Washington State. In July, Connecticut will expand the quota to five states as its wage level rises to $15 from $14.
By 2026, eight more states will join the $15 faction – Delaware, Florida, Illinois, Maryland, New Jersey, Rhode Island, Virginia and Nebraska. Hawaii will get there by 2028. That’s a total of 14 states with about 41% of the US workforce at or going to $15 an hour.
Another 36 locations – including more than two dozen in California, along with Denver, Minneapolis and Seattle – are already at $15 and will jump beyond it in less than two weeks.
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The $15 cap was widely considered a pipe dream when Fight for $15, an alliance of fast-food workers and other low-wage workers, began calling for it as part of nationwide walkouts launched in 2012.
“$15 is still a very important target rate,” says Lathrop. “It’s a minimum baseline.”
How does the minimum wage affect inflation?
Many restaurants and other businesses that employ low-wage workers disagree. They argue that sharp increases in minimum wages will only intensify inflation as employers raise prices to offset higher labor costs.
Federal Reserve Chairman Jerome Powell noted that inflation for goods such as furniture and used cars was moderating, but not for service businesses such as restaurants whose labor costs make up the lion’s share from their expenses.
Those price increases, he said, should ease before the Fed halts an aggressive campaign of interest rate hikes that has raised consumer borrowing costs and hammered stocks.
“Powell is right,” says Michael Saltsman, managing director of the Employment Policy Institute, which is supported by the restaurant industry. “An extreme wage mandate makes bad economic sense in any environment. Right now, it’s crazy to go ahead with it. Business owners, and small restaurants in particular, will pay the price.”
But Dante DeAntonio, an economist at Moody’s Analytics, says minimum wage workers make up a relatively small share of the workforce and their wage increases probably have little effect on overall inflation, especially when one takes into account the strong wage growth in the United States in the last two years.
“I’m not sure that really adds that much fuel to the fire,” DeAntonio says.
What is the impact of the minimum wage increase?
The state’s minimum wage increases around New Year’s Day will affect 3.4 million workers who now earn base pay and another 5.4 million who make slightly more but will benefit from ripple effects within a business, according to the left-leaning Economic Policy Institute. The figures do not include city and county minimum wage increases.
Meanwhile, private sector wages and salaries rose broadly by 5.2% annually in the third quarter, according to the Labor Department’s Employment Cost Index.
What is the US federal minimum wage?
The minimum wage increases come as the federal minimum wage has been stuck at $7.25 an hour since 2009 as Republicans in Congress have repeatedly blocked efforts to raise it.
About 30 states with more than 60% of the US workforce have pay levels higher than those of the federal government.
Also, dozens of companies have raised their entry-level wages to $15, including Target, Best Buy, Amazon, Costco and Southwest Airlines.