Putting the Issue to Rest – Why Automatic Minimum Wage Increases Make Sense

Raising Maryland’s minimum wage to $10.10 an hour is vital to the state’s economic prospects, but – as legislation proposed in Annapolis shows – that’s only half the battle.

In addition to raising the hourly wage rate, HB 295/SB 331 would require the state to annually increase the minimum wage based on the growth in the Consumer Price Index, a measure of inflation. This would address an important problem: the purchasing power of the wage decreases over time as prices increase, and periodic increases at unpredictable intervals adopted by the legislature tend to lag far behind the need. The legislation now being considered in Annapolis would not only raise the wage to catch up to  the price increases of recent years, but provide a way for the minimum wage to keep up with increasing costs in future years as well, without requiring additional legislative action.

Doing so makes sense. Given how important the minimum wage is,  it’s crucial that it  keep up with the cost of necessities. Today, 10 states have this automatic provision. In addition to being fairer to low-wage workers, this also makes the minimum wage consistent with programs intended to help low-income families maintain basic living standards.  For example, Social Security beneficiaries receive periodic Cost of Living Adjustments (COLAs) based on inflation. 

Sources: Minimum wage data: Maryland Department of Labor, Licensing, and Regulation, "History of Minimum Wage in Maryland," February 22, 2010, https://www.dllr.state.md.us/labor/wages/minwagehistory.shtml; Inflation data: Bureau of Labor Statistics CPI inflation calculator, http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=7.25&year1=2009&year2=2014

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Worse still, these periodic increases in the minimum wage do not necessarily respond adequately to increasing prices. As the chart above shows, sometimes lawmakers increase the minimum wage to a value less than what the wage would be had it automatically kept up with inflation. Tying the minimum wage to inflation  would make sure that not only is the minimum wage increased regularly and predictably, but also at an amount that matches the increase in prices.

This helps not only working men and women, but businesses too. First, indexing the minimum wage would give employers more certainty about labor costs. Second, it would help the low-wage customers of businesses better able to afford what the business makes or sells.

Tying automatic minimum wage increases to inflation would take the politics out of what ought to be an economic issue instead. Then, policymakers could focus more on other important issues crucial to Maryland residents’ economic well-being, like access to affordable health coverage, high housing costs, and student loan debt. While raising the minimum wage is a necessary start, additional policies are needed to address poverty and inequality.