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December 6, 2024
These 23 States Will Increase Minimum Wages in 2025: Can Businesses, Consumers Handle Higher Costs?
Despite, or perhaps due to, inflationary concerns, at least 23 states are slated to increase their minimum wage requirements for businesses in 2025.
As Ballotpedia outlined, 23 states — in addition to Washington, D.C. — are set to hike minimum wage rates within their jurisdictions. Those states are: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Illinois, Maine, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, Ohio, Oregon, Rhode Island, South Dakota, Vermont, Virginia, and Washington.
2025 Minimum Wage Hike Highest in Michigan, Lowest in Montana and Ohio
According to Ballotpedia, the minimum wage hikes enacted in 2025 will be highest in the state of Michigan (ticking upward by $2.15 to rest at $12.48 per hour, a significant 20.81% increase) and lowest — at least among those indicating raises of any sort at this time — in Montana and Ohio, where the wages will be bumped up just $0.25.
There’s quite a disparity nationwide, as Restaurant Business pointed out. While employers in Georgia and Wyoming actually face state requirements below the federal minimum wage of $7.25 hourly, they must abide by the federal threshold. Furthermore, the jurisdictions with the highest minimum pay requirements mandate over double the hourly pay compared to the regions with the lowest wage standards.
In 2025, Washington, D.C., Washington, and California will have the highest state minimum wages in place (at $17.50, $16.66, and $16.50, respectively), with Connecticut, New York, and New Jersey trailing not far behind.
Some Signs of Skepticism Emerge Over Continued Minimum Wage Increases
Per Restaurant Business, ballot initiatives presented during the Nov. 5 presidential election saw voters in California and Massachusetts — both reliable blue states — reject initiatives related to raising the “pay of fellow residents” for the first time in nearly 30 years.
In California, voters defeated a proposal to increase the state’s minimum wage to $18 by a thin margin (49% for, 51% against), while in Massachusetts, voters turned down a proposal to increase the minimum wage for tipped employees to match the state’s standard minimum wage (36% for, 64% against).
This could represent growing public concern over continued inflation, whether at retail superstores, restaurants, or fast-food establishments, as Restaurant Business suggested.
In a July op-ed for CNN, The Heritage Foundation’s Rachel Greszler made the case for slowing increases to the minimum wage. She contended that rising labor costs are driving accelerated automation, which is replacing minimum-wage jobs, and that rapid wage hikes reduce employment opportunities for teenagers and individuals with limited educational qualifications. Greszler suggested that government efforts to improve working-class fortunes often lead to unexpected negative outcomes.
“Rising wages are a great thing when they are the natural result of workers becoming more productive. Pay increases that result from government mandates can eliminate entry-level job opportunities and lead to a cascade of other unintended consequences,” Greszler argued.
While Greszler made the claim that fewer than one in 1,000 American workers was earning the minimum wage in July, U.S. Bureau of Labor Statistics data indicated that 1.1% of all hourly paid workers earned the federal minimum wage or less in 2023 and 1.3% in 2022 (not considering state requirements) — much higher figures. Also, it should be noted that those making even a penny more would not fall under either calculation metric.
While state and federal laws differ on the subject, the Los Angeles Times’ editorial board recently backed an increase to the latter in an unequivocal fashion. Referring to the existing $7.25 federal minimum wage as “poverty pay,” which is abided by in 20 states, according to Ballotpedia, the editors of the Los Angeles Times called for massive change.
“If the federal minimum wage had kept up with inflation, it would be close to $11 an hour now. An estimated 5 million workers earn less than $11 an hour. And let’s not kid ourselves — while earning $11 an hour working full time would lift a single parent out of poverty, it’s probably not enough to pay the bills and save for a rainy day,” the editorial board argued.
“There will always be debate over the correct level at which to set the minimum wage to help the most workers with the fewest negative consequences, which could include businesses cutting low-wage jobs to save money. Yet it should be clear that $7.25 is now woefully low and no longer a fair wage floor,” they continued.
Discussion Questions
Is the American public at large becoming more skeptical of continued minimum wage increases? Why or why not?
Should the federal government, or state governments, advocate for increased minimum wage standards?
Do businesses have any responsibility to ensure employees receive what is deemed to be a “living wage”?
Poll
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Shep Hyken
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Given that the average rate of increase is relatively modest, I don’t see companies going out of business over this. But, in a labor intensive industry like retail, even small increases can bite. There will be a consequence in terms of lower profits, higher prices, reduced investment, or cost cutting. Or a mix of these things. Personally, I’m not a big fan of minimum wages: I think markets should determine wage levels.
The minimum wage in the US is laughably low. Neil’s comment is on point; let’s follow the market, and embrace raises that allow associates to make a living wage.
Politicians who fail to look beyond the surface still do not seem to understand the full impact of mandatory minimum wage increases on the private sector. Experience does not help them learn.
The results of mandatory wage increases on private sector business models are multiple and not positive.
There are layoffs and businesses are understaffed as a result. This makes customers unhappy.
Or businesses must raise prices, which makes customers unhappy, and some stop being customers altogether.
Businesses close down without consumers, resulting in fewer jobs in the community, and some people become dependent on government programs.
Whenever businesses close and board up, part-time jobs for students, second incomes, and summer jobs disappear.
Where are we now?
It was never intended for McDonald’s or other minimum-wage jobs ever intended to be primary family incomes.
Low wage service industry employers are being subsidized by taxpayers. If it was a matter of providing necessary public services like healthcare, then that’s a legitimate discussion about where profit should accrue. But in retail and food, it’s supposed to be a free market:
Walmart, McDonald’s among largest employers of SNAP, Medicaid recipients: Report | Fox Business
The raises were defeated in high-wage states, embraced in lower ones (OK, I didn’t really check MT and SD , but I’ll play the odds)…it’s almost like people understand economics after all.
Another way to look at this topic is an analysis of the varying minimum wage landscape across states and the interesting business dynamics it creates. For example, the noted disparity between states, with some mandating more than double the hourly wages of others – how will this impact industry clustering and placement? For example, could this geographic cost differences accelerate the development of hub-and-spoke operational models where businesses strategically position different functions across state lines. Which are those positions and what is the relative/real cost differences? Further, to the author’s comment re: automation, will bifurcation zones emerge with some heavily indexing towards automation and others relying on traditional human contribution? As business leaders, we need to look beyond immediate cost implications and consider how these regional wage differences might reshape planning and execution patterns in the coming years.
For the kind of labor-intensive / not-automatable service-industry work that can be split off like this, the model has already been in use for half a century. Medical transcription, customer service, lab diagnostics and the like not only shipped to low-wage states or prisons, but completely offshore. Amazon seller central service all in India, for instance. So the new rules coming into place won’t have any appreciable effect in that regard.
How much is enough? And what Star Chamber is in place to make that decision? The issue is it is so very easy to agree with language like “a living wage” or “fair and equitable wages” because it sounds so, fair. Put that into place and you have lost jobs, a greater dependence on technology ($18 wages make the payback period on the self checkout proposal SO much shorter) and let’s not forget higher costs to consumers.
Businesses have two responsibilities, and only two:
-Provide value to their customers
-Provide a return on the capital needed to run the business.
It ends there. Anything more than that and you have a condition where the nattering class has more influence than it should have.
Customers are used to higher prices due to inflationary issues, and higher wages fall into that category. While customers don’t like it, that doesn’t mean they will stop doing business with companies that have higher prices than last year.
Prices have gone up over 20% over thte last 3.5 yrs, so it is understandable why employees are feeling the pain. Sadly, increasing the min. wage at this time is not the solution. Businesses and brands need some relief from pricing pressures, energy pressures and overhead expenses. Otherwise it will be an endless cycle of increasing prices to cover increasing costs. The root issue is getting inflation in line and below growth. Look to the private sector and ask if their employees are getting a double digit salary adjustment for 2025…
Where I’ve seen this be a big issue is in the restaurant business. Payroll becomes incredibly expensive when dishwashers are starting out at such a high min wage, leaving not much room, if it all, to pay higher wages for other, more experienced, staff.
Let me offer the thought I don’t often see: If the US economy can’t support stores selling goods while also paying their employees a living wage, then our economy has very serious problems. Fortunately, elasticity in the economy will likely wash out much of the threat for “higher prices.” I just don’t see any world in which we want to live where stores should be expected to impose incredibly hardship on the weakest in society — those with the lowest money. It also isn’t a store’s responsibility to make those rich. But a strong politically stable economy is a balance of competing issues including those of society.