The minimum wage is rising in half the country, but it’s unclear if anyone is better off

The minimum wage is rising in half the country, but it's unclear if anyone is better off

The minimum wage is rising in half the country, but it’s unclear if anyone is better off

In half the country, the minimum wage is starting to look a bit less mini.

California’s minimum wage is expected to hit $15.50 per hour next year — an automatic 50-cent jump set off by a never-before-used inflation trigger in state law.

Nationwide, 25 states will boost their minimum wage in 2022 or have already done so, while Hawaii recently passed a bill to hike its rate up to $18 an hour by 2028.

At first, it sounds like low-wage workers are finally catching a break. But as prices soar on everything from food to fuel, it’s clear families aren’t getting the boost to their budgets they might expect.

In fact, they might be slipping even further behind.

Inflation hits some harder than others

Inflation has been climbing relentlessly, hitting a 40-year high of 8.6% in May. That has everyone stretching their budgets to get through the week, but it isn’t affecting everyone equally.

“People who are on fixed incomes, who are living paycheck to paycheck, they’re spending most or all of what they’re earning on food, gasoline, rent, heating … basic necessities,” Federal Reserve Chair Jerome Powell said earlier this year .

Numerous studies, including one published last year by the Bureau of Labor Statistics, show lower-income households experience higher inflation than wealthier households.

When prices rise, low-income families can’t simply move to cheaper options, because they’re already using the cheapest ones available. And they can’t cut back on luxuries they never had.

“The largest inflationary gains are in energy products like gasoline,” said Ron Hetrick, senior economist at labor market data company Emsi Burning Glass, in an email.

The price of gas has increased almost 49% over the past year.

“The people most likely to experience the pain of increased gas prices are workers having to travel to work.”

Meanwhile, federal data shows the cost of food made at home has jumped by almost 12% since last year, while food purchased at restaurants and on-the-go has only increased by 7%.

And while homebuyers certainly don’t have it cheap, the typical rent being asked nationwide crossed $2,000 per month for the first time in May, according to a Redfin report.

Minimum wage varies state to state but can be as low as $7.25 an hour — the federal minimum set all the way back in 2009. However, even a salary of $15 an hour isn’t enough to meet the cost of living in any US state , data from the Massachusetts Institute of Technology shows.

Wages rise, but real wages fall

Among all workers, real hourly earnings dropped by 3% between May 2021 and May 2022, the Bureau of Labor Statistics reports.

Even during the worst of the pandemic, when many companies boasted of big raises for their heroic frontline staff, wages didn’t grow enough to compensate for rising consumer prices.

DC-based research group Brookings Institution analyzed 22 of the biggest retail, fast food, entertainment and hotel companies in the US, like Amazon, Chipotle and Macy’s, that paid their workers salaries of $15 or less at the onset of the pandemic.

It found that from January 2020 through October 2021, frontline workers received an average pay bump of between 2% to 5%, when factoring in inflation. However, inflation only continued to accelerate, and by the time the report was actually published, researchers suspected rising prices “eroded most, or even all” of those gains.

Hetrick also points out that, in many industries, wage hikes can push inflation even higher.

“Retail stores and restaurants have to pass on the costs of increased wages into their prices,” he says.

“Until the past several months, restaurant workers were seeing wages that outpaced inflation, but that trend changed earlier in 2022. Retail trade workers have fared worse decline, seeing their real wages slowly since early 2021.”

What does this mean for low-income workers?

Hetrick argues more companies should try to keep their wages stable so they won’t have to charge higher prices.

However, he says, “the most likely scenario to play out will be more and more service companies either figuring out how to keep their doors open with less people, or shutting down for good.”

On the other hand, many economists agree that it’s a job-seeker’s market, and now could be a good time to ask for a raise — or walk.

Daniel Zhao, senior economist at Glassdoor, says some workers are seeing faster wage increases as employers contend with labor shortages in sectors like food services, transportation and warehousing.

The workers most consistently beating inflation, he says, are quitting to do so.

“Generally, workers who switch jobs set the market rate and can even see double-digit percent raises,” Zhao says.

Appcast labor economist Andrew Flowers notes that labor makes up a relatively small fraction of the costs in the goods marketplace, including the manufacturing sector, especially with current supply chain issues and the spike in energy prices.

Overall, though, Flowers says restaurant and retail workers have the highest quit rates and wage increases.

“If they don’t get an increase of $1 an hour, they can go down the street and get a job at a different retail store, different restaurant and get a better offer,” he says.

What to read next

This article provides information only and should not be constructed as advice. It is provided without warranty of any kind.

Leave a Reply

Your email address will not be published.