States Outpace Feds on Minimum Wage

By: - June 20, 2007 12:00 am

Even though Congress has raised the federal minimum wage for the first time in 11 years, hourly workers in 30 states will be guaranteed higher pay than a new federal law requires when the law kicks in next month.

But the number of states besting the federal rate will decline as the new nationwide minimum rises in three steps, from $5.15 per hour to $5.85 on July 24, to $6.55 on July 24, 2008, and to $7.25 on July 24, 2009.

Unless new state wage increases are enacted, only 23 states will be above the federal minimum wage in July 2008 and 11 will be above in July 2009, according to an analysis by Liana Fox of the Economic Policy Institute (EPI), a research group that supports wage hikes.

Certain states – Connecticut, California, Alaska, Hawaii, Oregon and Washington, for example – are expected to continue a long tradition of boosting wages well above the federal minimum. “Some states pride themselves on keeping their labor rates above the federal level,” said Mike Flynn, of the Employment Policies Institute , which is opposed to wage hikes. He predicted that a handful of states will boost wages again in 2008.

Many of the states with higher minimum wages jumped in to help workers between 2004 and 2006, when attempts to boost the federal wage were bottled up in Congress.

This year, four states – Iowa, Kentucky, New Hampshire and New Mexico – raised their minimum wages above the federal rate for the first time, joining 29 other states. The new wage rates will have taken effect in only one of those states, Iowa, when the federal increase kicks in on July 24.

Last summer, Democrats in Congress attempted to increase workers’ pay, but the bill died after Republicans tied the wage hike to cuts in estate taxes that Democrats refused to accept. The stalemate broke after the 2006 elections, when the new Democratic majority made a national pay raise a top priority.

President Bush signed the Fair Minimum Wage Act of 2007 May 25, raising the minimum from $5.15, where it has been since 1996. Employers in states that have not enacted higher hourly rates will be required to move up to the federal rate under the mandated timeline.

Over the past 25 years, the proportion of minimum wage earners in the work force has dropped from 15.1 percent in 1980 to 2.5 percent in 2005, according to the U.S. Department of Labor. But advocates on both sides of the issue contend that the effect of a minimum wage hike goes far beyond those numbers.

Currently, 5.3 million workers make the minimum, according to the EPI. But another 7.2 million workers are expected to benefit from the new law, because employers also tend to raise the pay of workers who make slightly above the minimum, said EPI’s Fox.

Historically, Democrats have backed minimum wage increases, maintaining that the higher pay helps poor families climb out of poverty, while Republicans have opposed them, because they say government-mandated pay hikes hurt local economies and jeopardize jobs. But recent national polls show that a large majority of Americans, across both political parties, favor raising workers’ pay.

As a result, a majority of state legislatures have made wage hikes a top priority. In the past two and a half years, more states raised their minimum wage rates than in the 68-year history of the federal minimum wage law, according to the National Conference of State Legislatures.

The watershed was the 2004 election, when voters in Florida and Nevada overwhelmingly approved wage hikes while also voting for Republican President George W. Bush. Politicians realized the issue was a “winner,” said Bernie Horn of the Center for Policy Alternatives , a progressive advocacy group focusing on state policy.

In 2006, 11 states – Arkansas, California, Delaware, Maine, Maryland, Massachusetts, Michigan, North Carolina, Pennsylvania, Rhode Island and West Virginia – enacted increases in the minimum wage; six of those states were exceeding the federal rate for the first time.

On Election Day, voters overwhelmingly approved wage hikes in another six states – Arizona, Colorado, Missouri, Montana, Nevada and Ohio. In all six states, minimum wages will be adjusted by inflation annually, and in Nevada, the minimum must also remain at least $1 above the federal rate.

Business leaders and economists who oppose minimum wage hikes are particularly critical of laws that automatically adjust the minimum based on inflation, because, they say, wages could be forced up during economic downturns, hurting businesses and depressing the job market, according to Flynn, of the Employment Policies Institute. Only four other states – Florida, Oregon, Vermont and Washington – have laws that tie wage adjustments to inflation.

Starting July 24, 2007, when the federal wage increase takes effect, Washington state will have the highest wage in the nation at $7.93, followed by Oregon at $7.80, Connecticut at $7.65, Vermont at $7.53, California and Massachusetts at $7.50 and Rhode Island at .40.

New Mexico’s new wage law prohibits municipalities from raising hourly rates above the state level, but allows higher existing rates to remain in the state’s two major cities: Santa Fe (.50) and Albuquerque (.75). Washington, D.C., was the first city to raise its minimum wage, boosting it to $7 in 1993. San Francisco followed a decade later, increasing its rate to $8.82 in 2003, according to the Brennan Center for Justice.

Since 1997, 12 states – Arizona, Colorado, Florida, Georgia, Louisiana, Missouri, Oregon, Pennsylvania, South Carolina, Texas, Utah and Wisconsin – have passed laws prohibiting cities from enacting minimum wage rates higher than the state rate, according to the National Restaurant Association.

The hospitality businesses – hotels, restaurants, bars and casinos – hire more minimum wage workers than any other industry segment. Under most state laws, hospitality workers who make tips – such as bartenders and wait staff – make a substantially lower minimum wage than all other hourly workers. The new federal law sets the minimum wage for so-called tip workers at $2.13 an hour.

Seven states – Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington – require employers to pay tip workers the same minimum wage as other workers.

The percentage of the workforce that earns the minimum varies from state to state, with the highest proportion in Oklahoma and West Virginia at about 4 percent and the lowest in Alaska, California and Washington at 1 percent or less, according to the U.S. Department of Labor.

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Christine Vestal

Christine Vestal covers mental health and drug addiction for Stateline. Previously, she covered health care for McGraw-Hill and the Financial Times.