Rhode Island to Increase Minimum Wage on New Year’s Day

On January 1st, Rhode Island’s minimum wage will increase 35 cents to $7.75 an hour, raising wages for an estimated 29,000 low-wage workers in the state. Rhode Island’s minimum wage increase means an extra $510 per year in wages for the average affected worker, and the increased consumer spending generated by the minimum wage hike will boost GDP by $3.9 million, according to an analysis by the nonpartisan Economic Policy Institute. Rhode Island is joined by nine states – Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington – that will also raise state minimum wage rates on New Year’s Day, boosting wages for nearly one million workers nationwide.

Rhode Island’s January 1st increase is the result of a law signed by Governor Chafee in June of this year. The last time Rhode Island raised its minimum wage was in 2007. According to the Economic Policy Institute, an estimated 11,000 workers in Rhode Island will be directly impacted as the new minimum wage rate will exceed their current hourly pay, and 18,000 more will see a raise as pay scales are adjusted upward to reflect the new minimum wage. Sixty-four percent of these low-wage workers are adults over the age of twenty; 69 percent work 20 hours per week or more; 40 percent have at least some college education. [See chart for complete demographic breakdown.]

“Rhode Island’s modest minimum wage increase this year will help promote economic growth by boosting the exact kind of consumer spending that we need to accelerate the post-recession recovery,” said George Nee, President the Rhode Island AFL-CIO. “Congress should not only learn from Rhode Island’s example by raising the minimum wage, but it should also index the minimum wage to rise automatically with the cost of living so that low-paid workers do not fall further behind each year." 

While weak consumer demand is holding back business expansion, raising the minimum wage puts more money in the pockets of low-wage workers who have little choice but to spend that money immediately on basic expenses. In total, the minimum wage increases taking effect in all ten states on January 1st will generate over $183 million in new economic activity and create the equivalent of 1,500 new full-time jobs.

As of January 1st, 2013, nineteen states plus the District of Columbia will have minimum wage rates above the federal level of $7.25 per hour, which is just over $15,000 per year for a full-time minimum wage earner. Ten of these states index their minimum wage to increase automatically each year with the rising cost of living: Arizona, Colorado, Florida, Missouri, Montana, Nevada, Ohio, Oregon, Vermont, and Washington. Nevada has not scheduled a cost of living adjustment to take effect this year.

Like the federal minimum wage, Rhode Island’s minimum wage is not indexed to rise with inflation, and as a result its real value erodes every year unless the legislature approves an increase. Without further action, the purchasing power of Rhode Island’s minimum wage will fall from its current $7.75 per hour to $6.40 by 2022, according to estimates provided by the National Employment Law Project.

In real terms, the federal minimum wage is 30 percent lower today than in 1968. The Fair Minimum Wage Act of 2012, introduced in the U.S. Senate and House of Representatives in July, would help recover much of this lost value by raising the federal minimum wage to $9.80 by 2014 and adjusting it annually with rising living costs thereafter. The Fair Minimum Wage Act would also raise the minimum wage for tipped workers from its current low rate of $2.13 per hour, where it has been frozen since 1991, to $6.85 over five years. Thereafter, it would be fixed at 70 percent of the full minimum wage.

A large body of research shows that raising the minimum wage is an effective way to boost the incomes of low-paid workers without reducing employment.  A groundbreaking 1994 study by David Card and Alan Krueger, current chair of the White House Council of Economic Advisers, found that an increase in New Jersey’s minimum wage did not reduce employment among fast-food restaurants.  These findings have been confirmed by 15 years of economic research, including a 2010 study published in the Review of Economics and Statistics that analyzed data from more than 500 counties and found that minimum wage increases did not cost jobs.  Another recent study published in April 2011 in the journal Industrial Relations found that even during times of high unemployment, minimum wage increases did not lead to job loss.

Strengthening the buying power of low-wage workers is especially critical in this economic climate. A recent study by the National Employment Law Project reveals that, while 60 percent of jobs lost during the recession have been middle- and high-wage occupations, low-wage occupations have accounted for 58 percent of jobs created in the post-recession recovery.

The following table lists the states with increases; amount of increase; the new wage on January 1, 2013; the total workers directly and indirectly affected, the increase in annual earnings for the average affected workers, and the GDP impact of each minimum wage increase:

States with Minimum Wage Increase

Amount of Wage Increase

New Wage on Jan. 1, 2013

Total Affected Workers

Increased Annual Pay for Average Affected Worker

GDP Impact

Arizona

$0.15

$7.80

72,000

$320

$13,188,000

Colorado

$0.14

$7.78

66,000

$300

$11,170,000

Florida

$0.12

$7.79

210,000

$370

$46,428,000

Missouri

$0.10

$7.35

79,000

$190

$8,618,000

Montana

$0.15

$7.80

22,000

$310

$3,960,000

Ohio

$0.15

$7.85

215,000

$340

$43,443,000

Oregon

$0.15

$8.95

127000

$410

$22,681,000

Rhode Island

$0.35

$7.75

29,000

$510

$3,938,000

Vermont

$0.14

$8.60

11,000

$240

$1,461,000

Washington

$0.15

$9.19

164,000

$310

$29,009,000

Total

995,000

$183,896,000

The Rhode Island AFL-CIO  is the umbrella organization for more than 250 local unions which represent over 80,000 working men and women across the state. Nationwide, more than 13 million workers belong to the AFL-CIO. For more information, please visit: www.riaflcio.org.