States Still Leading Feds on Minimum Wage

With food and gas prices rising rapidly, low-wage workers can at least welcome an increase in the federal minium wage to $6.55 per hour scheduled to go into effect on July 24th.  Even better, a number of states will also be increasing their minimum wage rates even higher than the federal rate:

  • $6.85 per hour in Nevada
  • $7.15 in Pennsylvania (for smaller employers to match the rate already for large employers)
  • $7.25 per hour in West Virginia
  • $7.40 per hour in Michigan
  • $7.55 in the District of Columbia
  • $7.75 in Illinois
  • $7.25 per hour in New Hampshire this September and in Maine this October

Adding in states who have already raised their minimum wage, twenty-six states plus the Distrcit of Columbia, covering more than 60% of the U.S. population, will still have minimum rates above the federal rate. And even when the federal rate rises to $7.25 per hour next year, eleven states plus the D.C., covering 26% of the U.S. population, will still have a minimum wage rate higher than the federal level.  Five states plus D.C. will have minimum wage rates of $8 per hour or more.  

But here's something even more important: without any change in federal or state law, an additional six states will likely pass the federal minimum wage rate by 2011 because they have indexed their minimum wage rates to inflation.  Washington state, which began indexing its minimum wage rate to inflation back in 2001, will have the highest state minimum wage rate in the country at roughly $8.82 per hour (assuming 3% inflation over the next few years).

Unfortunately, all this means is that the working poor in Washington state and other indexed states will be treading water as prices rise, while the federal and non-indexed state rates will be losing value against inflation.  Compared to 1968, when the federal minimum wage was the equivalent of $9.34 per hour accounting for inflation, even the highest state minimum wage rates have lost value against inflation.   Measured as a percentage of the average wage, the federal minimum wage peaked in 1952 at 55% of the average wage and has now dropped well below 35% (graph courtesy of the Economic Policy Institute).

minimum wage loses value against average wages

All of this highlights the importance of more states raising their minimum wage rates and permanently indexing them to inflation.