Workers in 20 states will receive a pay rise on January 1 when the minimum wage rises, thanks to cost of living adjustments and other planned increases. Later this year, four more states and Washington, DC will increase their base wages, meaning low-wage workers in nearly half of the country could see higher wages next year.
The wage increases come because the federal minimum wage, which has not risen for over 11 years, is stuck at $ 7.25 an hour – the longest period in which base wage has expired without a raise since its inception in 1938. Over time, workers across the country are struggling amid an economic recession caused by the coronavirus pandemic, which continues to spread unabated.
A higher minimum wage could help those workers regain their financial position, especially the so-called essential workers such as grocery and home care workers, whose jobs helped keep the economy going during the crisis, but whose incomes are among the lowest. Critics argue that higher minimum wages can hurt the labor market by dampening job creation – but recent economic research has found no support for that claim. Instead, advocates say a higher minimum wage helps the economy by putting more money in the pockets of workers who usually spend it on local businesses and services.
The 2021 wage increases “are an indication that people understand how much the $ 7.25 federal minimum wage is keeping people in poverty,” said Holly Sklar, the CEO of Business for a Fair Minimum Wage, a network of business owners and organizations advocating for a higher minimum wage.
Sklar added, “Consumer spending is driving our economy, and raising the minimum wage is a powerful way to boost the economy.”
Some companies say that higher wages will pay for themselves in the long run through lower sales and greater job satisfaction.
“The direct cost of sales is clear: recruitment, interviews, training,” Kelly Vlahakis-Hanks, the CEO of ECOS, which makes ecological cleaning products, told CBS MoneyWatch. “The indirect costs are less clear-cut, but they are significant, and I think they are greatly underestimated.”
After her company increased starting wages to $ 17 an hour in 2014, voluntary revenue fell 50% from 3% to 1.5%, she noted. “We have employees who have been with our company for 20, even 30 years,” added Vlahakis-Hanks.
Lost purchasing power
Since the last federal minimum wage hike – to $ 7.25 an hour, beginning July 24, 2009 – the cost of living has risen more than 20%, while the price of basic necessities such as housing and health care has risen even faster. This has caused financial pain for many low-paid workers, who are increasingly paying a greater proportion of their income for housing and other expenses.
According to Harvard’s Joint Center for Housing Studies, about half of all tenants are “ charged with expenses, ” meaning they pay more than 30% of their income on housing. After paying their rent, people who earn less than $ 15,000 a year have about $ 410 a month left for food, transportation, health care and other supplies, the study said.
The minimum wage “was created to help us recover from the Great Depression,” Sklar noted. “It has a dual purpose: to reduce poverty for workers and boost consumer spending.”
Which states will raise the minimum wage in 2021?
According to the National Federation of Independent Businesses, a trade group, Michigan is expected to keep its minimum wage at $ 9.65 by January 1. That’s because of a law that prohibits wage increases if the state’s annual unemployment rate exceeds 8.5% in the previous calendar year.
Through October, the state unemployment rate averaged 10.2%, meaning it is unlikely to fall below 8.5% before the end of the year, the trade group noted. Michigan would otherwise have raised its minimum wage to $ 9.87.
Below are the names and new wage rates of states that will increase their minimum wages in 2021:
- Alaska, $ 10.34 hourly on Jan. 1
- Arizona, $ 12.15 an hour on Jan. 1
- Arkansas, January 1, $ 11 an hour
- California, January 1, $ 14
- Colorado, to $ 12.32 on Jan. 1
- Connecticut, up to $ 13 on August 1
- Florida, $ 8.65 on Jan. 1
- Illinois, down to $ 11 on Jan. 1
- Maine, up to $ 12.15
- Maryland, January 1, $ 11.75
- Massachusetts, January 1, $ 13.50
- Minnesota, up to $ 10.08 for employers with a minimum of $ 500,000 annual gross sales and $ 8.21 for employers with less than $ 500,000 on January 1
- Missouri, $ 10.30 on Jan. 1
- Montana, $ 8.75 on Jan. 1
- Nevada, up to $ 8.75 or $ 9.75 on July 1, with the higher rate in effect for employers who do not provide health insurance to employees
- New Jersey, January 1, $ 12
- New Mexico, up to $ 10.50 on Jan. 1
- New York State, to $ 12.50 on December 31, 2020, while Long Island and Westchester will rise to $ 14 on December 31, 2020
- Ohio, $ 8.80 on Jan. 1
- Oregon, to $ 12 on July 1, although it will increase to $ 13.25 for the Portland area and to $ 11.50 in non-urban counties
- South Dakota, $ 9.45 on Jan. 1
- Vermont, January 1, $ 11.75
- Virginia, $ 9.50 on May 1
- Washington State, January 1, $ 13.69
- Washington, DC will raise the $ 15 per hour minimum wage in July to match the change in the cost of living over the past 12 months