Earning the Federal Minimum Wage Is Worth 17% Less Now

Thanks to inflation, U.S. workers earning the federal minimum wage of $7.25 per hour have seen the value of that pay rate decline by about 17% since 2009 (the last time the federal minimum wage was raised), according to The Balance’s analysis of data from the U.S. Department of Labor and the U.S. Census Bureau. 

Our analysis looked at the minimum-wage workforce, the total number of workers in the U.S. making the minimum wage for the state in which they work. Because the federal minimum wage has not increased since 2009 and some states have their own minimum wage rate, only workers in states with a minimum wage of $8.75 or higher as of 2021 have seen their wages keep pace with inflation. Workers who are still earning just $7.25 per hour, or even just slightly more, have less buying power now than they did in 2009. In other words, if you’re making $7.25 an hour, your paycheck is worth less now than it was 13 years ago.          

“Not only has the federal minimum wage been stagnant for a dozen years, but inflation has become another whammy,” said Ben Zipperer, an economist at the Economic Policy Institute.  “Minimum wage workers are effectively earning less and less because their wages don’t go as far to buy the things they need to live.

Costs Have Increased, But the Federal Minimum Wage Has Not

The federal minimum wage of $7.25 per hour has been the same since 2009. Because wages have remained stagnant, workers effectively earn less and have less buying power now than they did 13 years ago. For example, the average sales price of a home in the U.S. was $272,900 at the end of 2009. At the end of 2021, the average sales price for a home was $497,300. So while housing prices—and the costs of many other goods and services—have increased over the last 13 years, the federal minimum wage has not, and that makes it less and less of a livable wage. 

According to the latest data from the U.S. Department of Health and Human Services, the federal poverty level for a family of four is $27,750 in 2022, which equals about $13.34 per hour—a full $6.09 above the federal minimum wage of $7.25 and clearly still far too low for someone to make a living and provide a decent standard of living for a family. And even if the federal minimum wage had kept pace with inflation between 1968 (when it was $1.60) and 2021, it would still have only been about $12.46 per hour in 2021, according to our analysis of data from the Bureau of Labor Statistics—still below the federal poverty level for a family of four in 2022. 

Some States Have Taken Action To Increase the Minimum Wage

There is some good news, thanks to states raising their own minimum wages: The proportion of U.S. workers earning $7.25 per hour has decreased to an estimated 13% in 2021. That’s because a number of states with large minimum-wage workforces have raised the bar on what they pay those minimum-wage workers.

For example, Washington, D.C., New York, and Colorado increased their hourly minimum wages the most since 2009 to $15.20, $12.50, and $12.32, respectively. These increases have kept pace with inflation better than other states that still have the minimum wage at or close to the federal minimum of $7.25. Even a state like Ohio, which did increase its minimum wage from $7.30 to $8.80 by 2021, made strides in the right direction, but not enough for its wage to keep up with inflation.

“There’s a game of catch-up happening, as states and cities are moving to raise their wages, but it’s revealing to see just how far workers are falling behind because of the federal minimum wage,” said Molly Kinder, a fellow at Brookings Metro, a research arm of the Brookings Institution that focuses on worker pay and power. 

This is causing an imbalance across the U.S.—minimum wage means different things in different states now. While many states have increased their minimum wage significantly over the last decade, 20 states still use the federal minimum wage of $7.25 per hour as their own.           

Five states—South Carolina, Mississippi, Alabama, Tennessee, and Louisiana—have no minimum wage law at all, and Georgia and Wyoming have minimum wages below the federal baseline ($5.15 an hour). In these states, most minimum-wage workers are covered under the Fair Labor Standards Act, which enforces the federal minimum.

West Coast and Northeast States Require Higher Minimum Wages Than Those in the South

The Balance’s analysis found that more workers on the West Coast and in the Northeast are paid higher minimum wages than those workers in most Southern and interior states. The Northeast states of New Hampshire and Pennsylvania are exceptions, as workers in both states make $7.25 an hour. Washington, D.C., currently has the highest minimum wage in the nation, at $15.20 per hour, which is more than double the federal minimum wage.

There are several states, including Texas, Tennessee, North Carolina, and Pennsylvania, that have a large number of workers still only earning the federal minimum wage. Texas has nearly 430,000 workers who earn $7.25 per hour, or less, as of 2021. If Texas had the same minimum wage as Arkansas (which pays $11 per hour), each of its minimum-wage workers would earn an average of about $7,800 more each year (before taxes, based on working 40 hours per week).

The federal minimum wage is not enough for U.S. workers to live, especially with the way prices have increased over the last few years. The annual inflation rate was 8.5% in March and while the Federal Reserve is working to tame it by raising interest rates, there’s no guarantee that prices won’t continue to increase for the next several months.

There is a bit of hope, though: President Joe Biden raised the minimum wage for federal employees to $15 per hour in January 2022. That $15-per-hour rate could be something all minimum-wage workers see in the future if the Raise the Wage Act of 2021 passes; it currently awaits review by Congress.

Methodology

The Balance gathered data on minimum wage by state from 1990 to 2021 via the U.S. Department of Labor (DOL). If a state had a range for its minimum wage in a given year, the highest wage in the range was used for all workers. All inflation adjustments to 2021 dollars were made from annual values that match DOL data via the IPUMS CPI adjustment. The adjustment from the last minimum wage change to the current year was done with 2010 and 2021 annual average values.

The estimated number of individuals making their state’s minimum wage for each year since 1990 was calculated from Annual Social and Economic Supplements to the U.S. Census Bureau’s Current Population Survey microdata via IPUMS. Based on conversations between The Balance and IPUMS staff, the minimum-wage workforce in each state for a given year was calculated by including the individuals who reported an hourly wage (via the PAIDHOUR ASEC variable in IPUMS) at or below that state’s minimum wage for a given year, and individuals whose weekly wages (via the EARNWEEK ASEC variable in IPUMS) when divided by their usual weekly hours worked (via the UHRSWORKT ASEC variable in IPUMS, replaced by either UHRSWORK1 or AHRSWORKT when respondent’s weekly working hours varied) came out equal to or less than their state’s minimum hourly wage for a given year.

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