Minimum wage milestone: Why Washington State surpassed $9 an hour

Low-wage earners have a little more to celebrate this new year, at least in eight states.

In those states, 2012 means a higher minimum wage, under laws that peg the wage floor to inflation. The increase makes Washington the first state to set its minimum wage higher than $9 an hour.

Why Washington? Why now?

Simple. Washington pegs its minimum wage to the consumer price index, says Paul Sonn of the National Employment Law Project. That means whenever the cost of living increases, so does the minimum wage there.

Nine other states do the same. (One of them, Missouri, opted for no change this year, and Nevada's increase won't kick in until midyear, leaving eight states where the minimum wage rose as of Jan. 1.) But Washington has been using that CPI-based formula since 2001, longer than any other state, and that's why its hourly wage is highest.

Of course enacting such a law is difficult. Most states that have laws tying minimum wages to the consumer price index have done so via ballot initiatives. This keeps the political football out of politicians' hands and gives it to voters, who mostly feel that raising the minimum wage as consumer prices increase is a good idea, says Mr. Sonn.

The new minimum wage laws, which also took effect Jan. 1 in Arizona, Colorado, Florida, Montana, Ohio, Oregon, and Vermont, will increase paychecks for more than 1 million workers, according to the Economic Policy Institute (EPI).

In addition, another 394,000 workers will be indirectly affected by the increase. These workers are likely to also see a wage increase, as employers adjust their overall pay structures to reflect the new minimum.

The amount of increase per state ranges from $0.28 an hour in Colorado to $0.37 in Washington. New minimum wages in the eight states now are set between $7.65 an hour and $9.04 an hour, according to EPI. As a result, minimum-wage workers in Arizona will see an average of $298 more in their paychecks this year. In Oregon, the increase is $538.

The current federal minimum wage is $7.25 an hour, which might not sound bad for a typical high school-age minimum-wage worker. But as it turns out, minimum-wage workers are not typically high school kids. According to data from the Labor Department, 80 percent of minimum-wage earners are older than 20. And about 60 percent of minimum-wage workers are female, even though women make up only 48 percent of the national workforce.

Effects on the broader economy as a result of raising the minimum wage are hotly disputed.

Opponents of a wage boost argue that minimum-wage hikes have unintended consequences. "When you raise the price of something, including entry-level labor, you're going to decrease demand for it," Michael Saltsman, research fellow at the Employment Policies Institute, in Washington, D.C., told The Wall Street Journal on Dec. 1. 

In a hurting economy, profit margins are razor thin for many businesses, and some say they will be forced to cut employee hours or consider raising workers’ share of employee-provided health care.

But there is no "evidence of any loss of employment or hours for the type of minimum-wage changes we have seen in the US in the last 20 years," says Arindrajit Dube, a professor of economics at the University of Massachusetts in Amherst.

If employers cut back on labor, it's generally because of poor economic conditions, not pay requirements, Mr. Dube told The Wall Street Journal.

What’s more, an increased minimum wage not only boosts wages for working families who are struggling to get by, but also stimulates economies because workers have more money to spend, according to EPI.

The institute estimates that more than $366 million will be injected into the economies of the eight states that raised the minimum wage this year. And in turn, EPI predicts, more than 3,000 full-time jobs will be created in those states as a result of the rise in the wage floor.

But Washington’s $9.04-an-hour minimum wage is just too high, isn’t it? Not really, historically speaking, writes David Cooper on EPI’s website.

The minimum wage has been considerably higher in years past. “In inflation-adjusted terms, the federal minimum wage was highest in 1968, at a value of roughly $9.85 per hour in 2011 dollars. So even at $9 per hour, the Washington minimum is well below historical highs, not to say anything of the federal minimum wage, which at $7.25 has declined in value by more than 26 percent since 1968,” writes Mr. Cooper.

Eighteen states and the District of Columbia set minimum wage rates above the federal minimum, 23 match it, and the other nine set rates below the federal minimum or do not have a minimum wage, according to the Department of Labor.

Georgia, Arkansas, Minnesota, Wyoming, and Puerto Rico all have state minimum wages set below the federal mark of $7.25 an hour, but most workers are covered by the national law.