While the White House and members of the GOP package the sweeping tax code overhaul as a win for the average American, low-wage workers may be hit the hardest.
This setback comes as the U.S. minimum wage has remained stagnant over the last decade. The last time the federal minimum wage increased was in July 2009, from $6.55 to $7.25. However, now 18 states are taking matters into their own hands, raising the minimum wage, effective January 1, 2018.
Ten states are doing so as the result of legislation over the last few years. Eight states will have smaller inflation-adjusted increases.
4.5 million workers
Left-leaning think tank Economic Policy Institute estimates that the increases will benefit 4.5 million workers. In the absence of Congress raising the wage floor, states and cities are tasking themselves with paying the lowest rung of workers a bit more.
“Increasing the minimum wage is a crucial tool to help stop growing wage inequality, particularly for women and people of color who disproportionately hold minimum wage jobs,” according to EPI economic analyst Janelle Jones.
Though the economy has been humming along, wage growth is lackluster and low-income workers have been disproportionately affected.
“For much of the past three decades, the wages of those at the bottom of the wage distribution have failed to keep up with overall economic gains. Most of the wage increase has occurred among the top half of the wage distribution, especially since the 1990s,” said UMass Amherst economics professor Arindrajit Dube.
The arguments against raising the minimum wage
The longstanding argument against raising wages is that it would have an adverse effect and force employers to lay off workers. The other concern is that the impact of wage hikes will trickle down to consumers, as well. For example, some restaurant owners say they feel pressure to increase prices if they have to dole out more to pay workers.
“What we are seeing is that there is an increase in restaurant operators who are taking price increases and the number one reason relates to labor,” Darren Tristano, CEO of Technomic, told CNBC.
Perhaps the most existential danger is the growing threat of automation as a more economical replacement for workers who require increasing wages.
“If the cost of an employee rises artificially, but employee skills or output don’t rise commensurately, competitive companies look for alternatives,” said Vanessa Brown Calder, policy analyst at libertarian think tank Cato Institute. “Possible alternatives may include automating work, eliminating the position altogether, or transferring responsibilities to more productive employees.”
Which states will see a boost?
Mainers will see the largest increase, with a full dollar increase, up to $10 per hour on January 1, 2018. It will be followed by another annual increase of $1 in 2019 until the wage reaches $12 in 2020. The law also revives the tip credit, which allows employers to count employees’ tips toward their wages. (Tipped employees can’t be paid more than 50% of the state’s hourly minimum wage in 2018.)
While conventional wisdom may suggest that workers should be happy with higher wages, restaurant servers actually fought to overturn the results of a 2016 referendum that would raise waiters’ salaries to $12 by 2024 (up from $3.75 in 2016). Protesters claim that they take home much less if customers believe they’re making more money and therefore tip less.
Colorado, Hawaii, New York, Vermont, Rhode Island, Arizona, California, Washington and Michigan round out the other states that will enact a higher minimum wage as of January 1. The median increase is $0.50 per hour of work.
Meanwhile, New Jersey, Ohio, Florida, Alaska, Montana, South Dakota, Minnesota and Missouri will see a slight bump — a median of $0.15, thanks to automatic increases to keep pace with price growth.
Nineteen states bumped up their minimum wage in 2017. Many of them are incremental increases, with timelines of 3-6 years to reach the ultimate goal.
The state of California and New York City and Seattle are all on track to reach a $15 minimum wage by 2022.
Micro measures
Several companies are proactively setting that $15 minimum for their employees, citing the lower corporate tax rate as incentive to hire more and pay workers a more competitive wage.
Both Wells Fargo (WFC) and Fifth Third Bancorp (FITB) are raising their company-wide minimum wage to $15 per hour, starting in 2018.
Other companies are introducing bonuses to appease workers. AT&T (T) is giving 200,000 employees $1,000 bonuses; CEO Randall Stephenson credited Congress and President Trump for enabling him to “create good-paying jobs.” (The telecom giant announced hundreds of layoffs shortly after announcing bonuses).
Comcast (CMCSA) also announced it would give out special $1,000 holiday bonuses to more than 100,000 non-executive employees. Boeing (BA) said it will invest $300 million on workers, split among worker training, upgrading facilities and a program that matches employees’ charitable contributions.
While companies’ efforts to boost wages can improve the lives of workers, advocates are looking for more permanent solutions, with support on both local and federal levels.
Melody Hahm is a senior writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.
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