Over the past year, historically strong wage growth hasn’t kept pace with skyrocketing inflation, leaving millions of low- to middle-income Americans struggling to pay their bills.
Starting New Year’s Day, the lowest-paid workers will make up a good chunk of that lost ground.
Twenty-one states and 41 cities and counties are poised to raise their minimum wages on or about Jan. 1, according to a report provided exclusively to USA TODAY by the National Employment Law Project (NELP), a worker advocacy group.
Two states, Massachusetts and Washington, will reach a $15 hourly pay floor for the first time, joining California and much of New York.
Since 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.
“The movement to raise wages continues to gain momentum,” said Jannet Lathrop, NELP’s senior researcher, and policy analyst.
How does inflation affect the minimum wage?
Typically, the annual minimum wage hikes dole out the largest increases to workers in states or localities taking a step in a planned series of bumps over several years.
Other states nudge up their pay floors by small amounts, perhaps 20 cents to 50 cents an hour because they’re indexed to annual inflation, which has averaged 1% to 2% for most of the past dozen years.
But inflation as measured by the Consumer Price Index (CPI) began to soar in spring 2021 as the U.S. economy reopened after the pandemic, 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 hikes around New Year’s Day will be handing workers significant pay increases.
The minimum wage will climb 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 jump from $17.27 to $18.69 for most workers, the highest among localities, because of inflation indexing.
Rather than providing workers a financial windfall, the increases will simply allow them to keep up with surging prices, Lathrop says.
“It will help workers at least maintain a minimum living standard,” Lathrop says. “It will prevent people from having to make tough decisions,” such as whether to buy food or medicine.
Other states are providing a healthy raise as part of a several-step increase in the minimum wage. The pay floor 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 Republican-controlled state, hasn’t lifted its minimum wage since 2014, Lathrop notes. But on New Year’s Day, the Cornhusker State will hike its base pay 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.
What states have a $15 minimum wage?
More states are joining the rapidly spreading $15-an-hour club. On Jan. 1, pay floors 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 contingent to five states as its pay floor rises to $15 from $14.
By 2026, another eight 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 U.S. workforce at or heading to $15 an hour.
Another 36 localities – including more than two dozen in California, along with Denver, Minneapolis, and Seattle – are already at $15 and set to hurtle beyond it in less than two weeks.
The $15 threshold was widely considered a pipe dream when Fight for $15, an alliance of fast-food and other low-paid workers, began demanding it as part of walkouts across the country that launched in 2012.
“$15 is still a very important target rate,” Lathrop says. “It’s a bare minimum baseline.”
How does the minimum wage affect inflation?
Many restaurants and other businesses employing low-wage workers disagree. They argue that sharp minimum wage hikes will only intensify inflation as employers raise prices to offset higher labor costs.
Federal Reserve Chair Jerome Powell has noted that inflation for goods like furniture and used cars has been moderating, but not for service businesses like restaurants whose labor costs make up the lion’s share of their expenses.
Those price increases, he said, must ease before the Fed pauses an aggressive campaign of interest rate hikes that have increased consumer borrowing costs and hammered stocks.
“Powell is right,” says Michael Saltsman, managing director of the Employment Policies Institute, which is backed by the restaurant industry. “An extreme wage mandate makes bad economic sense in any environment. Right now, it’s insane to move 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 pay increases likely have little effect on inflation overall, especially considering strong U.S. wage growth the past two years.
“I’m not sure this really adds that much fuel to the fire,” DeAntonio says.
What is the impact of raising the minimum wage?
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 somewhat more but will benefit from ripple effects within a business, according to the left-leaning Economic Policy Institute. The figures don't include city and county minimum wage increases.
Meanwhile, private-sector wages and salaries broadly increased a robust 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 remained stuck at $7.25 an hour since 2009, with Republicans in Congress repeatedly blocking efforts to raise it.
About 30 states with more than 60% of the U.S. workforce have higher pay floors than the federal government’s.
Also, dozens of companies have raised their entry-level wages to $15, including Target, Best Buy, Amazon, Costco, and Southwest Airlines.