20 States Raise Their Minimum Wages While the Federal Minimum Continues to Erode

On January 1st, 20 states will raise their minimum wages, lifting the pay of over 3.1 million workers throughout the country.1 New York, meanwhile, will have already raised its minimum wage on December 31st.  In nine of these states (Arizona, Colorado, Florida, Missouri, Montana, New Jersey, Ohio, Oregon, and Washington) the increases are routine—the minimum wage in those states is “indexed” for inflation so that each year the minimum is automatically increased to account for rising prices. The increases in the other 11 states, plus DC, are the result of changes to minimum wage laws—either legislation passed by state lawmakers or referenda passed directly by voters at the ballot box. Later in the year, another half-a-million workers in Delaware and Minnesota will also get a raise as legislated increases take effect there.

As the table below shows, the increases range from a 12-cent inflation adjustment in Florida—raising the minimum to $8.05—up to a $1.25 increase in South Dakota that will lift the state floor to $8.50. The smaller inflation-linked increases will lift pay for the roughly 4 to 7 percent of workers with wages at or very close to the minimum. The states instituting larger increases, however, will see a more sizeable portion of the state workforce getting a raise—such as in Minnesota, where the $1.00 increase later in the year is expected to lift pay for nearly a fifth of wage earners in the state.

All told, these increases will provide workers with $1.6 billion in additional wages over the course of the year. This added pay represents a modest, but significant, boost to the spending power of the affected workers, many of whom have children and families to support.

Even in the states where the minimum is simply being adjusted for inflation, the buying power of low-wage workers is being preserved, so they can still afford the same quantity of goods and services year-to-year. Given that consumer spending accounts for roughly 70 percent of the U.S. economy, this automatic adjustment of the minimum wage each year should be a no-brainer. Just as workers across the spectrum need regular pay increases so they can continue to afford their basic needs, businesses need a customer base with growing incomes if they’re going to thrive and expand. And because minimum wage increases overwhelming benefit low- to moderate-income households, they’re an easy way to put more money in the pockets of families that are likely to go out and spend it right away. As the last column of the table shows, the $2.5 billion in added wages generated by next year’s increases will translate into about $1.1 billion in economic growth as those dollars ripple out through the economy.

It’s encouraging that five states—Alaska, Michigan, Minnesota, South Dakota, Vermont—and the District of Columbia that have larger increases taking effect next year also enacted indexing that will take effect in future years. As shown in the map below, this will bring the number of states with some form of indexing up to 15. The map also shows that as of the new year, 29 states and the District of Columbia (as well as a number of cities and smaller municipalities) will have minimum wages above the federal minimum of $7.25. At that time, 60 percent of all U.S. workers will be in states with wage floors above the federal.

All this action at the state level speaks to how broadly voters and policymakers throughout the country recognize that the federal minimum is too low. At $7.25 per hour, the federal minimum wage is worth roughly 23 percent less than it was worth in the late 1960s, and its eroding value has led to more and more workers turning to federal safety net programs because they’re paid too little from work to make ends meet. Given that the country has grown vastly richer and more productive over the past 45 years, there’s no reason why workers in any state should be getting paid less today than their counterparts a generation ago.

The good news is that states aren’t waiting for the federal government to act. This is the first time in history that so many states will be raising their wage floors in the absence of a federal increase, and the first time since 2008—when states were raising their wage floors in anticipation of the last federal increase—that so many states will be above the federal minimum. But many other states still have minimum wages at or below the federal minimum, and states with minimum wages that aren’t indexed will see their wage floors erode in the coming years. We need a national wage floor that ensures a decent level of pay for work regardless of what state one lives in. That’s why Congress should follow the example set by voters and legislators in their home states and raise and index the federal minimum wage—fixing this problem once and for all.

Note: This post has been updated from an earlier version.  The previous version incorrectly accounted for state minimum wage increases that took place in 2014. The figures and table have been updated to correctly account for these increases. The earlier post also incorrectly stated that the DC minimum wage will take place on January 1.  It will take place on July 1.

1. Although originally scheduled to take effect on January 1, the Alaska minimum wage increase will not go into effect until February 24th. This should not measurably change the statistics for Alaska listed in the table. Additionally, tens of thousands of workers in the District of Columbia will also get a raise next July when the District minimum wage rises from $9.50 to $10.50.  Estimates for DC are not included here because data challenges make identifying affected workers in the District more challenging, although a ballpark estimate would be roughly 100,000 workers.