STATE MINIMUM WAGE
WHAT IS A STATE MINIMUM WAGE AND WHY IS IT IMPORTANT?
A minimum wage establishes a floor for workers’ hourly wages to prevent exploitation by employers and ensure a minimum level of compensation. The current federal minimum wage stands at $7.25, but states can establish higher thresholds.1 Currently, 31 states have a minimum wage that is higher than the federal level, with the District of Columbia and a number of large cities already at $15.00 or greater.2
A state’s subminimum wage refers to the floor set for tipped workers, workers with disabilities, or teenage workers early in their employment, who may be exempted from the federal minimum set by the Fair Labor Standards Act (FLSA).3,4 The FLSA defines tipped workers as those who regularly receive more than $30.00 per month in tips.5 States can increase their subminimum wage for tipped workers above the federal floor (currently at $2.13 per hour). A tiered system with a subminimum wage for tipped workers has been shown to contribute to poverty6 and unpredictable earnings.7
States Vary Significantly in Their Cost of Living and the Purchasing Power of Their Minimum Wage
The cost of living (i.e., the resources required to purchase a given set of goods and services) varies significantly across the country because of regional differences in consumer prices. This variation means that a nominal (or “face-value”) wage of $10.00 in two different states may buy a family more in one state than another. A nominal wage can be converted into a real wage or cost-of-living adjusted (COLA) wage to account for state price differences and offer a way to compare purchasing power more consistently across states. For example, Hawaii’s prices are 19.3% higher than the national average, whereas Mississippi’s prices are over 15% lower than the national average.8 Hawaii’s minimum wage, of $10.10 in 2021, therefore buys less in terms of real purchasing power ($8.47) than Mississippi’s minimum wage of $7.25 (which represents $8.59 in purchasing power). Examining both a state’s nominal minimum wage and COLA minimum wage is therefore critical when making policy.
Higher State Minimum Wages Can Improve Child and Family Outcomes Through Greater Access to Resources
Higher state minimum wages can result in higher incomes, which can help families more easily access essential resources such as housing, food, health care, and transportation.9 Greater access to basic needs can reduce parental stress, which may improve a child’s caregiving environment and reduce the likelihood that an infant or toddler will experience abuse, neglect, or other adverse experiences at home.10
The Current Federal Minimum Wage Does Not Lift a Full-Time Worker Supporting a Family Out of Poverty
With the current federal minimum wage of $7.25 per hour and a 40-hour work week for 52 weeks per year, an individual working full-time earns $15,080 annually, which is below the federal poverty level (FPL) for two-, three-, and four-person households.11 A $10.00 per hour wage also keeps a worker below the poverty level if the worker is the sole earner supporting a three-person or larger household. A $10.00 wage should therefore be considered a floor in 2021, and state minimum wage increases above that level in future years may yield better child and family outcomes. Eleven states are expected to reach $15.00 or greater by 2026, based on scheduled increases in state legislation, but currently the District of Columbia is the only state already at that level.12,13
Women and Workers of Color Make Up a Disproportionate Share of Low-Income Workers, and Income Disparities Contribute to Wealth Gaps
Women and workers of color are disproportionately represented among those who earn less than $15.00 per hour, and wage disparities can contribute to income and wealth gaps.14 White workers earn, on average, 25% more in annual income than Black workers,15 and the median net wealth of White families is estimated at 10 times that of families of color.16 Of the 10 states with the highest share of Black children ages 0 to 3, six have not raised their minimum wages above the federal level (Mississippi, Louisiana, Georgia, South Carolina, Alabama, and North Carolina).17,18
Increasing the Minimum Wage Can Impact Millions of Families and Substantially Reduce Poverty
The Congressional Budget Office estimated that if all states raised their minimum wages to at least $10.00 per hour by 2025, 1.5 million workers would see their wages increase, and among the lowest-income families, income would increase by $400 million overall.19 According to the Economic Policy Institute (EPI), if all states implemented a $15.00 minimum wage by 2025, 32 million workers, or 21% of the US workforce, would benefit from higher earnings, either directly or indirectly.20 A $15.00 wage floor would lift 3.7 million people, including 1.3 million children, above the federal poverty level. One in three Black workers and one in four Hispanic workers would benefit. Implementing at least a $10.00 state minimum wage in 2021, with gradual increases to $15.00 over time, could therefore have a substantial impact on reducing poverty and promoting equity.
Higher State Minimum Wages Would Yield Positive Economic Ripple Effects
Increasing state minimum wages may save taxpayer costs by boosting earned income and reducing the amount of support lower-wage workers may need from public assistance programs. The EPI estimated that for the lowest-income workers,21 each $1.00 increase in hourly wages would reduce the share of workers receiving public assistance by 3.1 percentage points (a reduction of 850,000 individuals receiving public assistance).22 A study estimating the effects of a federal minimum wage boost from $7.25 to $9.80 per hour predicted an increase in gross domestic product of $25 billion and a net increase in jobs of 100,000 during the 2-year phase-in of the higher wage.23
WHAT IMPACT DO STATE MINIMUM WAGE INCREASES HAVE?
Increasing the minimum wage to $10.00 or greater increases household earnings and reduces child poverty, particularly in families of color. A minimum wage of $10.00 or greater also improves birth outcomes and children’s health and development.
Higher State Minimum Wages Reduce Racial and Ethnic Disparities in Family Outcomes
Research suggests that increases in a state’s minimum wage can significantly reduce poverty and infant mortality, with the greatest effects for Black and Hispanic families.24,25,26 The interaction of a higher minimum wage and a state earned income tax credit has also been shown to benefit Black and Hispanic mothers’ earnings to a greater degree than for White mothers, which may contribute to reducing disparities in poverty by race.27
In addition, women of color benefited most from increases in the tipped minimum wage in a recent study that examined expectant mothers’ mental health.28 Given that approximately 70% of tipped workers are women29 and 45% of restaurant workers are people of color,30 the level of the subminimum wage is a critical equity issue.
Finally, a minimum wage increase to $15.00 by 2025 would have a significant positive impact for child care workers, over a third of whom are Black or Hispanic. Such an increase would raise pay for 44% of child care workers, with an average boost of $2,900 in annual earnings overall, and with higher average increases in annual earnings for Black and Hispanic child care workers (over $3,100).31
WHAT PROGRESS HAVE STATES MADE IN THE LAST YEAR TO ADOPT AND FULLY IMPLEMENT A STATE MINIMUM WAGE OF $10.00 OR GREATER?
States made substantial progress this past year toward ensuring workers earn at least $10.00 per hour. Currently, 22 states have a minimum wage that is at least $10.00, which includes three states that passed the $10.00 threshold for the first time in 2021 (Florida, Missouri, and New Mexico). At least three additional states will pass the $10.00 threshold in 2022. Two states, Rhode Island and Delaware, passed legislation in the last year to increase the value of their minimum wages in 2022, and 25 other states have subsequent increases to their minimum wage scheduled.
Among the states that do not yet have a $10.00 minimum wage, 25 states introduced, but did not pass legislation to increase their minimum wages. With the exception of three of these states, each state had at least one proposed increase that would have set the states’ minimum wages to at least $15.00 within 6 years. If all of the legislation that was proposed in states this past session had passed, workers in every state would make more than the federal minimum of $7.25.
Tracking State Policy Progress
Policy adoption does not typically happen quickly. States may introduce legislation several times before adopting a policy and take even more time to fully implement it. Every year we track states’ efforts toward adopting and fully implementing each of the five effective policies in this State Policy Roadmap. The figure below illustrates the change in each state’s policy status between 2020 and 2021. This change in status toward full policy implementation may mask the legislative activity that states engage in throughout the year. Therefore, we also document and summarize the legislative progress states are making toward full implementation of a minimum wage that is at least $10.00 per hour. In subsequent sections, we describe how states vary in the generosity of their state minimum wages.
22 States Have a Minimum Wage of $10.00 or Greater, Including 3 New States This Year
As of October 1, 2021, 22 states have enacted and fully implemented a minimum wage of at least $10.00 for most workers, including three new states this year: Florida, Missouri, and New Mexico. Florida passed a ballot initiative in November 2020 that increased the state’s minimum wage to $8.65 on January 1, 2021, and then to $10.00 beginning September 30, 2021. The rate is scheduled to increase $1.00 each year for the next 5 years, until it reaches $15.00 in 2026. Missouri and New Mexico raised their wages on January 1, 2021, from $9.45 to $10.30 in Missouri and from $9.00 to $10.50 in New Mexico, based on previously scheduled increases. The wages in each state will continue to increase until they reach $12.00 in 2023.
At Least 3 Additional States Will Have a $10.00 Minimum Wage in 2022
In the last legislative session, Delaware passed a bill that will increase its minimum wage from $9.25 to $10.50 in January 2022, and the wage will continue to increase until it reaches $15.00 in 2025. Legislators passed a bill in 2020 in Virginia that will continue to increase its minimum wage from $9.50 (reflecting the first increase from $7.25 to $9.50 in May of 2021) across the $10.00 threshold to $11.00 in January 2022, to $12.00 in 2023, and, pending reauthorization by the legislature, to $13.50 in 2025 and to $15.00 in 2026. Nevada’s minimum wage for workers who are not provided health insurance is scheduled to increase from $9.75 to $10.50 next year, and will continue to increase by $0.75 each year until it reaches $12.00 in 2024.
Minimum Wages Will Continue to Increase in 27 States
Rhode Island is the only state besides Delaware to pass a bill in the last year to increase the state’s minimum wage. The state currently has a minimum wage of $11.50, which will increase to $12.25 on January 1, 2022, and will continue to increase until it reaches $15.00 in 2025. In addition to Rhode Island, minimum wages in 26 other states are scheduled to increase, either because of a statutory increase to a specific wage or an increase based on inflation.
At Least 11 States Will Have a $15.00 Minimum Wage by 2026
Currently, the District of Columbia is the only state to have a minimum wage that is at or above $15.00 per hour. The District of Columbia’s minimum wage is $15.20. California is scheduled to increase its state minimum wage to $15.00 next year. Nine other states are scheduled to have a $15.00 minimum wage within the next 5 years: Connecticut and Massachusetts will reach $15.00 in 2023; New Jersey will reach $15.00 in 2024; Illinois, Maryland, Rhode Island, and Delaware will pass the $15.00 mark in 2025, Florida is scheduled to reach $15.00 in 2026, and, pending legislative reauthorization, Virginia is also scheduled to reach $15.00 in 2026.
All States With a Minimum Wage Equal to the Federal Minimum of $7.25 Considered Adopting a Minimum Wage of at Least $10.00
Twenty states currently do not have a minimum wage higher than the federal minimum of $7.25, and all introduced legislation in the last year to increase their states’ minimum wages to at least $10.00, and most proposed an increase to at least $15.00 within 6 years. Although legislation did not pass in any of the 20 states, many seriously considered the legislation and it is likely the bills will pass in subsequent sessions.
States Took Steps Toward Making the Minimum Wage Accessible to All Workers
Federal law allows states to set lower minimum wages for workers who primarily rely on tips and for workers with disabilities. Currently, four states (Alaska, Maine, Maryland, and New Hampshire) have fully eliminated the subminimum wage for individuals with disabilities. In addition, four states (Colorado, Hawaii, Oregon, and Washington) have passed legislation to eliminate the subminimum wage by 2025, and all but Oregon passed this legislation in the last year (Oregon passed legislation in 2019). Hawaii will phase out the subminimum wage next year, Oregon and Washington will eliminate their subminimum wage by 2023, and Colorado voted to eliminate its subminimum wage by 2025. Twelve other states introduced, but did not pass legislation this last year to eliminate the subminimum wage.
Most states (35) currently have a tipped minimum wage that is higher than the federal tipped minimum wage of $2.13 per hour, and in the last year, 17 additional states introduced legislation to increase the tipped minimum wage, although none of the bills passed. Eight states have eliminated subminimum wages for tipped workers.
Many states have laws that prohibit localities from setting minimum wages that are higher than the state minimum wage, and these laws are known as preemption laws. Among the 25 states that currently have a minimum wage preemption law in place, 12 states introduced legislation to remove the law, although the bills did not pass in any of the states.
How Does Indiana Compare to Other States in Making Progress Toward Adopting and Fully Implementing a State Minimum Wage of $10.00 or Greater?
The figures below show how states compare to one another in making progress toward adopting and fully implementing a minimum wage that is at least $10.00.
Of the 22 states that have a minimum wage that meets the $10.00 threshold, 11 of these states have a wage that is $12.00 or greater, and these states also have scheduled future increases in the minimum wage. Only two states (Arkansas and Hawaii) have a minimum wage of at least $10.00, but do not have increases to the wage scheduled. Among the 22 states in this group, the dollar value of the minimum wages varies from $10.00 in Florida to $15.20 in the District of Columbia, but the average minimum wage among states at or above the $10.00 mark is $11.89.
Nine states have minimum wages with a value that is higher than the federal minimum of $7.25, but lower than $10.00, which is the minimum level that research indicates is needed to impact family and child wellbeing. The average wage among this group of states is $9.21.
Twenty states have minimum wages that remain at the federal minimum, yet as discussed above, most of these states are actively trying to increase their minimum wages.
HOW DOES THE STATE MINIMUM WAGE VARY ACROSS STATES?
States Vary in the Level of Minimum, Cost-of-Living Adjusted, and Subminimum Wages
States vary in the value of their minimum wage, as well as in how they set their minimum wages. A total of 22 states have a minimum wage of at least $10.00, but the value varies across states from $7.25, in the 20 states that have the federal minimum wage, to $15.20 in the District of Columbia.32
The nominal value of a state’s minimum wage may not reflect the real purchasing power of that wage, which is why it is important to look at states’ cost-of-living adjusted wages when comparing minimum wages across states. For example, the District of Columbia has a nominal minimum wage of $15.20 per hour, but the with the cost-of-living adjustment, the wage is only worth $13.19 per hour, which is still the highest value in the country, however. California and Arkansas provide an interesting example: California has a nominal minimum wage of $14.00 per hour, which is $3.00 more per hour than Arkansas’s $11.00 minimum wage. After the wages are adjusted for the much higher cost of living in California compared to Arkansas, the real value of California’s minimum wage is only $12.03, which is nearly $1.00 less than Arkansas’s cost-of-living adjusted minimum wage of $12.99.
With regard to minimum wages for tipped workers, eight states33 have legislated one minimum wage that applies to all workers (who do not have disabilities), instead of maintaining a standard minimum wage and a separate wage for tipped workers.34 Subminimum wage levels for tipped workers vary from a low of $2.13, in states in which it is set to the federal minimum, to a high of $14.00 in California.35
Three states (Kansas, North Dakota, and Wisconsin) set their minimum wage at $7.25 by statute, whereas four states set their minimum wage to the federal minimum OR at $7.25, whichever is higher (Idaho, Iowa, Kentucky, Pennsylvania).36 Five states adopt the federal minimum wage in their statutory language, regardless of the level (Indiana, New Hampshire, Oklahoma, Texas, and Utah), and another five states have no state minimum wage in their statutory language at all, which means they default to the federal minimum (Alabama, Louisiana, Mississippi, South Carolina, and Tennessee). Two states (Georgia and Wyoming) set their minimum wage at levels below the federal minimum, but the federal level overrides state law. Finally, North Carolina’s statute sets a minimum wage below $7.25 as well; however, its statutory language also specifies that if the federal minimum is higher, then it overrides the lower state minimum.
Half of States Have a Minimum Wage Preemption Law
Several large cities including Chicago, San Francisco, Oakland, San Jose, New York City, and Seattle have implemented local minimum wages that exceed the current state levels or that are being implemented on a faster phase-in schedule than approved state increases.37 Half of states, however, have laws known as preemption laws that prohibit localities from setting minimum wages that are higher than the state minimum wage. Among the 25 states who currently have a minimum wage preemption law in place, 12 states introduced legislation to remove the law, although the bills did not pass in any of the states.
Over Half of States Have Scheduled Increases to the Minimum Wage
The minimum wage is scheduled to increase in coming years in 27 states because of a statutory increase to a specific wage or an increase based on inflation. Three of the 27 states (Delaware, Nevada, and Virginia) will pass the $10.00 threshold in 2022. Currently, the District of Columbia is the only state to have a minimum wage that is at or above $15.00 per hour, but 10 other states will have a $15.00 minimum wage or greater by 2026, beginning with California next year.
An Increase in the Minimum Wage Would Affect a Significant Number of Families
Many workers remain poor despite working full-time. The percentage of workers who remain poor varies considerably across states and is influenced by the state’s minimum wage. The percentage of children under age 3 with at least one parent working full-time living near poverty (defined as 150% of the FPL) ranges from 9.2% in the District of Columbia to 33.2% in Arkansas. In 11 states, more than 25% of children under age 3 live in working families who remain near poverty.