States Continue to Raise the Bar for Minimum Wages Across the US

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Published on : Feb 27 2017

By: IBISWorld Analyst, Ariobarzan Arian

The topic of raising the minimum wage is always a contentious one, with opposing sides spending considerable time and resources to influence public opinion. The Trump Administration and Congress currently have not signaled any plans to increase the federal minimum wage, which has remained at $7.25 per hour since 2009.  According to the Bureau of Labor Statistics (BLS), an estimated 2.6 million - or 3.3% - of all hourly paid workers in the US earn at or below the federal minimum wage. Nevertheless, individual states have been taking the initiative to raise their minimum wages. In light of these recent wage hikes, IBISWorld expects that the prices of a variety of services dependent on low-skilled labor will rise in these states.

Rising Minimum Wages & the Impact on Services

With the recently nominated Secretary of Labor candidate, Alexander Acosta, still undergoing the confirmation process, the burden of determining wage minimums will continue to fall on states’ shoulders in the meantime. Since the start of the new year, 19 states have raised their minimum wage. The biggest increases occurred in Arizona, Washington, Maine and Massachusetts, with each state opting to raise the minimum wage by at least $1 per hour. Conversely, states such as Alaska, Missouri, Ohio, Florida, New Jersey, South Dakota and Montana opted to raise their minimum wages by, at most, only $0.10.  Furthermore, 12 states, including nine that raised wages earlier this year, already have further wage increases set to take effect in the next few years.

Workers Affected by Minimum Wage Graph

Buyers located in the 19 states that have raised minimum wages, as well as those that purchase services from vendors located in those states, are likely to encounter higher service prices going forward. However, price increases will largely be limited to markets that primarily rely on low-skilled labor to deliver their services. Some such markets, including Janitorial Services, Carpet Cleaning Services and Locksmith Services are expected to rise in price by 0.9%, 0.8% and 2.7% in 2017, respectively. These prices are also projected to increase in the next three years as individual states continue to pass legislation aimed at raising the minimum wage.  IBISWorld recommends that businesses purchasing services from vendors that will be impacted by minimum wage hikes enter into service contracts as soon as possible to lock in current prices before they increase. Furthermore, entering into long-term service contracts can also help businesses budget more accurately for future expenses and plan accordingly. Alternatively, businesses can explore moving certain services in-house, which provides greater control over wages and, in turn, costs.  If business conditions remain favorable and this trend in minimum wage hikes continues, prices will continue to grow while job growth will take a moderate hit.

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