A $15 minimum wage in 2025 may not be worth $15 by then. Here's how inflation could take a big bite.

Scott Olson/Getty ImagesDemonstrators participate in a protest outside of McDonald’s corporate headquarters on January 15, 2021 in Chicago, Illinois.
  • Democrats are currently pushing to increase the minimum wage to $US15 an hour by 2025.
  • That means minimum-wage workers will see pay rise incrementally.
  • Insider looked at what $US15 in 2025 would be equivalent to today, adjusting for inflation.
  • Visit the Business section of Insider for more stories.

There’s currently a large progressive push for a $US15 minimum wage. But even if it passes, it could take years to come into effect — and inflation could impact the actual take home value.

A $US15 wage would be more than double the current federal minimum wage of $US7.25 an hour (which hasn’t changed in over a decade). But that raise wouldn’t actually come until 2025; the proposals on the table have the wage raising incrementally over the next couple of years. The minimum wage would increase to just $US9.50 in 2021.

Although the federal minimum wage has been the same for over 10 years, prices meanwhile have gone up. Under the Raise the Wage Act of 2021, the minimum wage would be indexed to the median wage after reaching $US15 as a solution to this issue.

But the value of $US15 has also changed over time.

“We’ve been talking about this so long that $US15, had we gotten there years ago, would have been worth a lot more than $US15 in 2025 would be worth,” David Cooper, an economic analyst at the Economic Policy Institute, told Insider.

What $US15 in the next few years could be worth in today’s dollars

“I think that under all current forecasts of how inflation is going to play out over the next four years, it wouldn’t be worth that much less in 2025 than it’s worth now,” Harvard PhD scholar Anna Stansbury told Insider. She added that the value could be eroded in areas where house prices are increasing.

$US15 in 2025 would be worth about one or two dollars less in today’s dollars.

“The Federal Reserve projects that prices rise 2% year-on-year in the longer run. In the next two years, these predictions are slightly lower at 1.8% and 1.9% respectively,” Felix Koenig, assistant professor of economics at Carnegie Mellon University’s Heinz College, wrote in an email to Insider. “The value of a $US15 MW [minimum wage] in 2025 is therefore approximately the same value as a $US13.90 MW today.”

Even if the federal minimum wage doesn’t increase to $US15, eight states are gradually increasing their minimum wages to $US15. Virginia is also increasing its minimum wage to $US15 by 2026, but the state’s General Assembly has to reauthorize the rates for 2025 and 2026 by July 2024.The following shows what an eventual $US15 would be worth today, adjusting for different inflation scenarios:

The table shows, for instance, that if Connecticut is reaching a $US15 minimum wage in 2023, then $US15 in 2023 is the same as about $US14.42 today when assuming 2% inflation for the next two years.

New York is another state that is gradually raising its minimum wage. According to the New York State Department of Labour, the per cent rate increase will be “based on economic indices, including the Consumer Price Index.” New York City already reached a $US15 minimum wage. Long Island and Westchester is scheduled to reach $US15 this year.

Cooper said because California’s rate will be indexed after reaching $US15 using the national Consumer Price Index for Urban Wage Earners and Clerical Workers, the state’s minimum wage will likely be somewhere around $US16 or $US17 in 2025, when the federal minimum wage would be $US15 if enacted.

Several states already raise the minimum wage with inflation. According to a 2020 report from the Congressional Research Service, 18 states either index or will index their minimum wages to inflation in the years to come.

Why to start with an incremental raise

Researcher Yannet Lathrop said that an incremental increase makes sense, as places like Georgia and Alabama still pay the federal minimum wage of $US7.25 — meaning an immediate increase would more than double their wage floor.

“If the wage in those places was closer to $US15, I think it would make a lot more sense to do it in one or two steps, but a gradual approach is probably better so that businesses have a chance to adjust to the higher wages,” she said.

Cooper agrees. He said the US needs to first close the gap between the current rate and where it should be so that the rate “can meet all their [workers] needs and have a modest, but adequate standard of living.”

The value of $US15 an hour also differs by state, as different areas have higher (or lower) costs of living. But a raise will still have a tangible impact on 32 million workers, according to the Economic Policy Institute.

Who would benefit from a $US15 minimum wage

The minimum wage raise still isn’t a done deal: Some senators — including a few Democrats — have expressed hesitancy.

A report from the Congressional Budget Office said that a $US15 minimum wage could lift 900,000 people out of poverty. It may have a negative impact on the budget deficit and employment, although some economists disagree with the impact on employment.

Importantly, a raise to the minimum wage could be one way to bolster the women disproportionately impacted by pandemic employment, according to Jasmine Tucker, director of research at the National Women’s Law Centre. And research from the Economic Policy Institute found that almost one-third of Black workers would benefit from the raise.

“That’s gonna lift women’s wages — it’s primarily women [impacted],” Tucker said. “It’s a lot of women of colour. So that’s going to be a huge thing to lift all boats, really.”

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