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.