One of the major problems with the federal minimum wage is that it is not indexed to inflation, and no one has bothered increasing it for the past decade. It is stuck at $7.25 per hour, even as inflation continues to increase the prices of goods and services.
Many states and local governments have stepped in to increase the minimum wage on their own via local labor laws. Many of those same states have eliminated the inflation problem by either setting up regular increases, or indexing their minimum wage amount to inflation. As a result, an increase in minimum wage for 2018 is just another in what is looking to become the new normal for each January.
The higher of the state minimum wage or the federal minimum wage prevails since employers in a state must comply with both laws.
Minimum Wage for 2018
There are 18 states with the minimum wage going up on January 1, 2018. Some of those are slight minimum wage increases based on inflation. For example, the minimum wage in Minnnesota will increase by 15 cents on January 1 based on an automatic inflation increase in the minimum wage.
In other states, the minimum wage amount is increasing based upon manual adjustments. For example, in Colorado, the minimum wage will go from $9.30 to $10.20, based on a citizen initiative that raises the minimum wage in manual increments over the next few years to $12 and hour, and then indexes it to inflation from there on out.
Others, like Alabama have no increases coming, so minimum wage will stay the same. (In fact, Alabama has no minimum wage law of its own at all, so the federal law governs there.)
Where this all gets interesting is that there are some places in the country where the minimum wage is approaching (or past) the near-mythical $15 per hour level, while others have a minimum wage that is half that amount.
As we’ve discussed before, any low-skill job (typically the minimum wage jobs) that can be done non-locally, has long since been outsourced to cheaper parts of the country, or even more likely, overseas. That means there are few minimum wage jobs to be lost by moving them elsewhere. After all, an Arby’s cashier in Alabama won’t help you in Washington, no matter how much less the minimum wage is there.
So, the question is, does the quality of life improve in areas with higher minimum wages, or does the cost of living just increase? The catch to this question is the increasing amount of goods and services purchases over long distances, or online. The price of a calculator at Amazon is the same in a high wage state as in a low wage state, which limits the potential cost increases for non-locally produced items.
It will take a few more years (and a recession probably) to see what things will really look like as the country divides into high minimum wage states, and low minimum wage states.