Many states saw changes to their minimum wage at the beginning of 2022, yet federal minimum wage hasn’t moved a penny.
As someone who has spent over five years working in Human Resources and Talent Acquisition with access to pay rates and ranges at varying levels and throughout different industries, Alysa Southall, our CEO, knows how important this conversation about minimum wage has been in the world, within companies and to HR professionals and executives. Many employees are expressing their need to be valued higher and some states are listening by increasing their state minimum wages, but a national problem still exists.
Federal minimum wage has not increased since July 2009. For those of you who don’t want to do the math, that was over 13 years ago. Alysa remembers seeing the federal minimum wage poster three years ago and questioning how $7.25/hour was an adequate wage. Now, three years later, she is still in awe of that number. How is it possible that in 13 years the “living wage” has not increased by even one cent? The average cost of purchasing a home in that time alone has more than doubled. It’s important to remember that each state has a different cost of living and that increasing minimum wage at a large scale comes with a set of challenges.
We, at A People Partner, understand the impact that raising the minimum wage paid in an organization has on the business. We comprehend the ripple effect that increasing minimum wage in companies has on the job market, communities and inflation rates. For example, if we raise our lowest paid worker by $3/hour, then simultaneously we will need to raise every employee’s wage approximately the same amount to account for their higher experience level. This increases the budget and bottom line of the company, which then has the ability to impact the number of employees the company can afford and can increase the cost of the product or service a company offers to offset these adjustments.
So with our HR hat on, we can understand the hesitancy of a massive overhaul to the minimum wage from a business perspective. However, our HR hat is two-sided. Some may argue that HR professionals should have a primary focus on the business and keeping it out of legal trouble. This is true. However, a major priority of an HR professional is the employee experience and to retain top talent. This also means that the HR professional needs to prioritize the employees and their needs. So if we flip our hat around to the employee side of things, we can be frustrated at the fact that federal minimum wage has not moved increased one iota since July 2009.
We often see minimum wage given to us in an hourly basis format of $7.25/hour. If we annualize that number (multiply by 2080 which is the minimum number of hours a full-time employee works in a year), we get $15,080/year. We’ll give you a minute to get up off the floor after seeing that annualized figure. Let’s compare that annualized amount to average incomes by state in 2021 across the U.S. According to World Population Review, D.C. has the highest average income at $88,702. On the flip side of that, Mississippi has the lowest average income at $41,776. Now of course this is averages so it isn’t representing the highest wage or the lowest wage, but Mississippi’s average income is $26,696/year more than federal minimum wage. However, cost of living is assessed a little bit differently.
“The cost of living index provides you with the percentage difference in the cost of living between one location and another. The percentage difference is always compared to 100; therefore, if the cost of living index is 90, it is 10% below the location it is being compared to. In this case, when comparing the cost of living index of states, 100 represents the U.S. average.” (World Population Review, 2021). Mississippi registers at 84.8 on the cost of living index and has a living wage of $46,000.
A review of the numbers indicates that the federal minimum wage provides an unrealistic rate that companies can base their minimum wages on. Kudos to the states who have forged their own paths of improving this misleading dollar amount. As HR and Talent professionals, we encourage you to push for change of the minimum wages in our organizations to at least reflect the living wage of the employer’s state. However, our responsibility goes beyond the scope of our day-to-day. We need to push for change at the federal level. No state should be able to pay the federal minimum wage amount to their employees if the “living wage” figure does not align in the lowest cost of living in that state.
Kudos to the companies who are doing their research and offering a minimum wage that is equal to the cost of living in their area and is increasing the amount they are giving their employees in 2022.
“Be the change you wish to see in the world.” – Mahatma Gandhi.
References and Related Materials
Harrison, D. (2021, December 7). Companies plan big raises for workers in 2022. The Wall Street Journal. https://www.wsj.com/articles/companies-plan-big-raises-for-workers-in-2022-11638889200
U.S. Department of Labor. (n.d.) Minimum Wage. U.S. DOL. https://www.dol.gov/agencies/whd/minimum-wage
World Population Review. (2021). Average Income by State 2021. World Population Review. https://worldpopulationreview.com/state-rankings/average-income-by-state
World Population Review. (2021). Cost of Living Index by State 2021. World Population Review. https://worldpopulationreview.com/state-rankings/cost-of-living-index-by-state