Raises will benefit nearly 1 million workers, boost consumer spending and accelerate the economic recovery
The minimum wage will increase in ten states on January 1st, modestly boosting the incomes of nearly one million low-paid workers in Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Rhode Island, Vermont, and Washington. The state minimum wage rates will rise between 10 and 35 cents per hour, resulting in an extra $190 to $510 per year for the average directly-affected worker. Rhode Island’s minimum wage will rise as a result of a law signed by Gov. Lincoln Chafee in June; the remaining nine states will raise their minimum wages in accordance with state laws requiring automatic annual adjustments to keep pace with the rising cost of living.
The increased consumer spending generated by these minimum wage increases will boost GDP by over $183 million, according to an analysis by the Economic Policy Institute. While weak consumer demand continues to hold back business expansion, raising the minimum wage puts more money in the pockets of low-wage workers who often have no choice but to immediately spend their increased earnings on basic expenses.
“We need policies that make sure workers earn wages that will at the very least support their basic needs,” said Christine Owens, executive director of the National Employment Law Project. “But earning an income that meets basic needs shouldn’t depend on the state where a working family lives. We need to raise and index the federal minimum wage to help all of America’s workers.”
The 10 minimum wage increases scheduled for Jan. 1 will benefit a total of 995,000 low-paid workers: approximately 855,000 workers will be directly affected as the new minimum wage rates will exceed their current hourly pay, while another 140,000 workers will receive an indirect raise as pay scales are adjusted upward to reflect the new minimum wage, according to an analysis by the Economic Policy Institute. Seventy-one percent of these low-wage workers are adults over the age of 20, and 69 percent work 20 hours per week or more.
As of Jan. 1, 2013, 19 states plus the District of Columbia will have minimum wage rates above the federal level of $7.25 per hour, which translates to just over $15,000 per year for a full-time minimum wage earner. Ten states also adjust their minimum wages annually to keep pace with the rising cost of living – a key policy reform known as “indexing” – to ensure that real wages for the lowest-paid workers do not fall even further behind: these states include Arizona, Colorado, Florida, Missouri, Montana, Nevada, Ohio, Oregon, Vermont, and Washington. Nevada has not scheduled a cost of living adjustment to take effect this year.
Because the federal minimum wage is not indexed to rise automatically with inflation, its real value erodes every year unless Congress approves an increase. Without further action from Congress, the current federal minimum wage of $7.25 per hour will lose nearly 20 percent of its real value over the next 10 years and have the purchasing power of only $5.99 in today’s dollars, according to a new data brief by the National Employment Law Project. The report includes projections for the eroding purchasing power of minimum wages in each state over the next ten years. The federal minimum wage would be $10.58 today if it had kept pace with the rising cost of living since its purchasing power peaked in 1968.