Does the federal minimum wage still matter?

Starting next week, the minimum wage will get a boost in a handful of U.S. states and cities. The wage floor will rise to $12 per hour in Nevada, $14.20 per hour in much of Oregon and $16.20 and $17.50 per hour in Chicago and Washington, D.C., respectively.

Those raises are all tied in some way to the consumer price index, thanks to systems devised by state and municipal lawmakers to help workers’ paychecks keep pace with inflation.

However, efforts to raise the federal floor have long since stalled out, and in much of the country, that minimum wage of just $7.25 an hour still applies.

The last time the federal minimum got a boost was in 2009, when skinny jeans were king and the Black Eyed Peas topped the Billboard Hot 100. It’s the second-largest stretch without an increase since the minimum wage was created in 1938, said Sebastian Martinez Hickey, a state economic analyst with the Economic Policy Institute.

During that time, “it’s declined in its purchasing power and its value by more than 40%,” Martinez Hickey said.

But only around 1% of workers are actually making 7.25 per hour.

“Clearly, the federal minimum wage is below the market-clearing wage virtually everywhere,” said Don Grimes, a researcher at the University of Michigan.

Especially since the pandemic, when America’s lowest-paid workers generally saw the fastest wage growth.

“The federal minimum really doesn’t matter anymore,” Grimes said, adding that there are benefits to leaving it up to cities and states, which can adjust according to their unique cost of living. “Like Oregon, they actually have a different minimum wage for the city of Portland and rural areas.”

Lots of proactive cities and states have implemented scheduled increases indexed to inflation.

“They allow businesses the chance to sort of anticipate increase in wages and to make adjustments,” said Brian Asquith, an economist with the W.E. Upjohn Institute for Employment Research.

So who is left making the federal minimum wage? They live in the 20 states that haven’t adopted a minimum above $7.25, mostly in the South, Midwest and Mountain West.

“It tends to be workers who are very unlikely to switch jobs, maybe because of disability status, immigration status,” said the EPI’s Martinez Hickey.

Workers who are less able to take advantage of a hot labor market or hold on to wage gains when it cools off.