This January, workers making minimum wage will notice their paychecks possibly getting a little larger. Minimum wage increases in 22 states and 43 cities/counties should boost the standard of living for workers at this end of the spectrum. By year-end, 25 states and 60 cities/counties will have raised minimum wages. Wins in 2023 include California fast food wages hitting $20 an hour.
Additionally, in 2024, ballot campaigns aim to raise minimum wages nationwide, with proposals such as $20 by 2027 in Massachusetts and $18 for non-fast food workers in California by 2025/2026.
That said, many people are wondering what this minimum wage increase will mean for them. News like this doesn’t come often, but it also doesn’t come with entirely good news. However, economists would say otherwise and believe there’s nothing to worry about.
Happy New Year for U.S. Minimum Wage Earners
In 2024, nearly half of U.S. states increased minimum wages, with 22 states announcing hikes on January 1, and three more planning increases later this year. Notably, 20 states maintained the $7.25 federal minimum wage. Budget shifts are expected nationwide as 25 states implement increases. Post January 1, 7 states and Washington D.C. offer a $17+ minimum hourly pay.
The federal minimum wage, set at $7.25 since 2009, increased through 2007 amendments: $5.85 in 2007, $6.55 in 2008 and $7.25 in 2009. Currently, 30 states and Washington, D.C., exceed the federal minimum.
Alabama, Louisiana, Mississippi, South Carolina and Tennessee didn’t establish state minimum wages. Georgia and Wyoming set theirs at $5.15. However, in all seven states, the federal minimum wage of $7.25 prevailed.
Nevada raised its minimum wage in July 2023 to $10.25+, and Oregon raised its minimum wage to $13.20+, depending on your exact location in the state. Also, Florida increased wages to $12/hour in September 2023.
The Effect on Retail Workers
About 10 million U.S. workers experienced pay raises in 2024 due to various minimum wage increases. With new laws effective from January 1 in 22 states and numerous municipalities, the impact on retail workers may not be immediate.
In late 2023, data showed the average retail salesperson earned approximately $17 per hour nationwide. Major companies like Amazon (NASDAQ:AMZN), Home Depot (NYSE:HD), Target (NYSE:TGT) and Lowe’s (NYSE:LOW) affirmed adherence to minimum wage requirements — often surpassing them. That approach, initiated during the early pandemic, where essential workers received higher pay, continues.
Retail businesses may further increase wages amid competition for workers in a low-unemployment environment and higher starting pay trends. For instance, Amazon established a $20.50 starting wage in September 2023, while the Rutter’s convenience store chain in Pennsylvania adopted an $18 hourly rate in 2024.
Fast-food workers in California now earn a $20 minimum wage, potentially affecting the labor market. The healthcare worker pay increase law adds pressure on retail wages. Larger brands anticipate raises, but smaller businesses on thin margins may struggle, leading to layoffs, reduced hiring or price hikes.
The Congressional Budget Office, assessing a potential $15 federal minimum wage, expressed uncertainty about its impact. Research on minimum wage’s effect on employment varies. Despite this, the near-term potential for higher pay in retail is crucial for wage equity, particularly benefiting women and people of color, who are overrepresented in the workforce.
What Happens When Minimum Wage Increases?
The minimum wage sets a universal floor for legal employee payment. While a national rate is common, some countries have regional, industry-specific or age-related minimums. Certain workers, like those in agriculture or domestic labor, may be excluded. Advocates argue that raising the minimum wage enhances the overall living standards of workers, aligning their income with the rising cost of living.
The economic impact of the minimum wage is intricate. Advocates claim that raising it stimulates consumer spending, benefiting businesses and the overall economy. Critics, however, caution that elevated labor costs may result in job cuts, automation and higher prices.
A 2022 Congressional Budget Office study assessed the macroeconomic impact of a $15 minimum wage by 2027. It found 10.9 million workers directly affected, with an additional 9.2 million potentially affected. By 2032, over 23 million workers were projected to be directly or potentially affected.
Advocates believe raising the minimum wage could lift more individuals and families out of poverty, potentially reducing the need for government financial aid for the economically disadvantaged.
Improved morale due to higher wages may offer intangible benefits for companies and employees. Addressing the challenge of motivating low-wage workers, the boost could lead to tangible advantages like enhanced retention, lower hiring costs and increased employee effort. Lengthier job tenure may result in improved advancement opportunities and reduced relocation expenses for employees.
The Downside
Raising the minimum wage could lead to increased prices, contributing to inflation. Opponents claim widespread wage and salary hikes may escalate operating expenses, compelling businesses to raise prices on goods and services. That inflationary effect could offset the benefits of higher incomes for workers.
Raising the minimum wage poses potential problems, including projected job losses. Many economists and business leaders believe businesses may cut jobs to maintain profitability. The CBO study estimated up to 1.6 million jobs lost by 2027 and 1.9 million by 2032 — on the high end.
Another less apparent negative impact is increased competition for minimum wage jobs, potentially leading to overqualified individuals taking positions typically filled by young or inexperienced workers. That could hinder the entry of less experienced individuals into the job market, limiting their opportunities for career advancement.
Bottom Line
In conclusion, despite the widespread concerns and discussions surrounding the 2024 minimum wage increases, it appears the overall impact may not be as significant as some fear. While people may worry about these changes, a closer examination suggests they might not be a big deal in the broader economic context.
It is important to consider various factors, such as inflation, cost of living adjustments and potential benefits for low-wage workers, to form a more nuanced understanding of the implications of the minimum wage increases in 2024.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
