4.5 Million Workers Start the New Year with Higher Pay

On January 1st, thirteen states raised their state minimum wages, lifting the pay of more than 4.5 million workers. Eight of these states (Arizona, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington), have state minimum wages that are “indexed” to inflation so that every year, the minimum wage is automatically increased in order to protect the purchasing power of minimum-wage workers’ incomes. Colorado also automatically increases its minimum wage based on inflation, with the increase occurring each July.

In the remaining 5 states (California, Connecticut, New Jersey, New York, and Rhode Island) citizens voted to raise their state minimum wages during the past year. Voters in New Jersey also chose to index their state minimum wage to inflation so that in January of 2015, New Jersey’s minimum wage workers will see the same paycheck protection afforded workers in the 9 other states with inflation indexing.  The table below details all of these increases.

As the table shows, these increases will give more than $2.7 billion in additional wages to affected workers over the course of the year.  For the states that voted to raise their minimum wages, these additional wages represent a modest, but valuable injection of dollars into the pockets of workers who typically rely on every penny they earn and are likely to spend those dollars right away. For the states with indexing, these new wages ensure that minimum wage workers can still afford the same volume of goods and services that they bought the previous year. 

In both cases, the consumer spending generated by this additional income provides businesses with the customers they need to maintain and grow their workforces. As shown in the last two columns of the table, The $2.7 billion in additional spending power for affected low-wage workers will generate about $1.7 in output (GDP), which will support 13,000 jobs that would be lost or never created if these increases did not occur.

There are now 21 states, plus the District of Columbia, that have minimum wages higher than the federal minimum wage. With more than half of all U.S. workers now covered by minimum wages higher than the federal minimum, these state increases highlight the broad recognition that the federal minimum wage needs to be raised. We estimate that raising the federal minimum wage to $10.10 per hour by 2016, as proposed in the Fair Minimum Wage Act of 2013, would lift wages for nearly 28 million Americans workers, providing $35 billion in increase wages for these workers, and boosting consumer spending by $22 billion. The Fair Minimum Wage Act would also follow the example of the 10 “indexed” states, mandating that the federal minimum wage be automatically increased by inflation each year after reaching $10.10.

Bringing the federal minimum up to $10.10 by 2016 would restore the minimum wage to roughly the same purchasing power it had in the late 1960s, and by tying it to inflation, this minimum purchasing power would remain constant going forward. Given that our economy is vastly richer and far more productive today than it was 45 years ago, there’s no reason why minimum wage workers in any state should be paid less in 2014 than they were in 1968.

  • Eagle 1

    I am not sure who vetted this paper but it raises many concerns. The main one is whether this was intended to support a theory or political point or be an actual financial analysis of the real affects of raising the minimum wage. For example for article states that 28M workers would benefit. It is not clear how or why u used that number. the BLS clearly state that in 2012 that only 3.5M people earned minimum wage. Of this 3.5M, half were under 25 and half were part time jobs. In addition the number of people earning minimum wage has been declining, meaning more people have been making above minium wage. Please reference BLS “Characteristics of Minimum Wage Workers: 2012″. In addition much research has been done on the affects of rising the minimum wages in various economic climates. The main affect is usually a increase in the unemployment rate for 16-25 year olds. The basic conclusion is that for every 10% increase in minimum wage there is a corresponding increase of about 1-2% in the unemployment rate for that demographic (Nuemark). This is shown in BLS data for that demographic including the 2009 increase. The unemployment rate increase now sits at around 25% which is close to a all time high. Your article makes many assumptions but neglects to state the conditions for the analysis or conclusions. You assume some type of indirect benefit to other workers which will create some kind of wealth affect that I am not aware of. I could understand in a high growth economy with a tightening of labor supply that raising the minimum wage may help out the next tier of wage earners but that is not the economy we are in today or is forecasted for the near future. Your article appears to misstate the actual reality of such laws and fails to mention at a minimum that the low skill workers in the 16-25 (usually student and usually female) will be negatively impacted. In another words, when people vote for the increase they are basically voting against their college age kids or teenagers from the opportunity to get their first job or side job in college. I would appreciate a clarification.

    • dgodon

      I believe EPI has addressed part of your question at http://www.epi.org/publication/raising-federal-minimum-wage-to-1010/

      • Eagle 1

        The 28M people and the classification of workers is complete inconsistent with the trend data from the BLS. At most, 3.5M make min wage out 175M+ workers. I attempted to reference them to the 2012 data but obviously they are not interested. looking at the times series data raising the minimum wage will not generate anything but an addition 2-5% (depends on level) increase to the 16-25 years olds unemployment rate and females and minorities would be hit the most. Current that number is 25% up from 16% in 2009. From a logic perspective this article looks like a policy statement more than an analysis.