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FOR IMMEDIATE RELEASE
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The Council of State Governments

(859) 244-8246

Feb. 22, 2013

 

How a Federal Minimum Wage Hike Would Affect States

LEXINGTON, Ky—Economists and policymakers tend to disagree on the social and economic impacts of raising the minimum wage and the practice is always sure to elicit debate. But when the federal rate is raised—regardless of the impact—it triggers a number of changes in states and state leaders must decide how best to implement those changes.

If Congress agrees to President Obama's call for an increase in the federal minimum wage to $9 an hour, some workers would see an even higher minimum wage. That's because some states—like Alaska and Massachusetts, as well as the District of Columbia—tie their minimum wage rates to the federal rate, according to a new analysis by The Council of State Governments.

Alaska keeps its rate at 50 cents above the federal rate, while Massachusetts requires its minimum wage to automatically increase to 10 cents above the federal rate if the federal minimum wage equals or becomes higher than the state's rate. The District of Columbia sets its minimum wage at $1 above the federal rate.

Jennifer Burnett, CSG's fiscal analyst who studied the impact of the Obama proposal and published a brief on the issue, said the effective minimum wage would increase from today's rates by $1.75 per hour for those 32 states that currently have the same minimum wage as the feds—a 24.1 percent increase. The only state that would not see any change would likely be Washington, as its rate is already above the proposed $9 an hour minimum. The remaining 17 states would see effective increases at the low end of 5 cents in Oregon and 40 cents in Vermont and at the high end of $1.65 in Missouri and $1.60 in Michigan, according to Burnett.

Historically, more than half of states kept their state minimum wages the same as the federal rate while the rest of states pushed their minimum wages above it.

"Over time, as some states continued to raise their rates and others didn't, the difference between state rates grew," said Burnett. "When the federal rate increased periodically, it essentially 'reset' that divergence as lower wage states were typically brought up to the level of their higher wage counterparts."

For example, in Washington, the state has been using a consumer price index-based formula since 2001, which is longer than any other state. Over the past 12 years, the state's wage has grown with inflation, hitting $9.19 this year. That makes it the highest minimum wage set by any state and a full 21 percent higher than the federal rate. If the federal rate moves to $9 an hour, the state's rate will become more in line with other states and will be just 2 percent higher than the federal rate.

According to Burnett, the last time the federal minimum wage was raised was in 2009, when it went from $6.55 to $7.25 an hour. Since then, the upward creeping cost of living has eroded the value of that wage. If it had been adjusted for inflation, it would be around $7.61 today. To keep pace with the increasing cost of living, Obama has proposed that the federal minimum wage be tied to a consumer price index—something that at least 10 states already do.

Read the full brief here.

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