Consumer prices rose 5.3 percent in August compared to the previous year, causing some anxiety as the economy recovers from the pandemic. Food prices at home increased by 3%, while food prices away from home (i.e. restaurants) increased by 4.7 percent, according to the Bureau of Labor Statistics’ latest release this week. Rents and energy prices both increased by roughly 9%.
One point of worry for employers and employees in the United States is that activists frequently exploit inflation data to support their campaign for a $15 minimum wage, or even a higher salary of $23 per hour, despite the fact that study shows such steep rises will destroy millions of jobs.
Remember, if we kept up with inflation, the minimum wage would be $23/hr right now. $15 is a good middle ground. #RaiseTheWagehttps://t.co/44l6Rqln0F
Despite the fact that inflation has risen dramatically in the last year, the so-called “The Fight for $15” is still not based on a consumer price index. If the 2009 federal minimum wage increase to $7.25 per hour were indexed to climb with inflation, it would equal $9.22 today, according to Bureau of Labor Statistics data up to August 2021.
If the minimum wage were to be adjusted to the level in 1990, it would be $7.17 now. No matter how you slice it, these data don’t even come close to, let alone support, the $23 hourly rate proposed by the union-backed One Fair Wage.
Indeed, the $15 minimum wage goal that several states and municipalities have already enacted has no precedence in history. An organizing director for the Service Employees International Union’s Fight for $15 campaign joked about the absence of genuine analysis informing their main policy goal at one meeting, saying: “We decided that $10 was too low and $20 was too much, so we settled on $15.”
Unfortunately, these draconian minimum wage targets, which lack economic justification, will wreak havoc on firms and employees as they try to recover from the pandemic. According to the impartial Congressional Budget Office, the Raise the Wage Act of 2021, which proposes a $15 minimum wage nationwide, may cost the country up to 2.7 million jobs. According to economists from Miami and Trinity Universities’ industry and state-level analyses, the hospitality and restaurant industries would bear the brunt of these effects. Increases above the $15 minimum wage would have an even bigger negative impact on employer costs, and could result in the loss of many more employment.
In 2022, how would the minimum wage be adjusted for inflation?
President Biden stated at his State of the Union address that bringing inflation under control was a primary goal, and he told businesses, “Not your wages, but your costs.” However, many firms across the country have not responded to current health or economic problems by decreasing salaries. And, in certain regions of the country, salaries are only going higher by law, as many municipal minimum wage legislation increase their rates in response to changes in the consumer price index (CPI). We present a projection of what businesses can expect during these difficult economic times, not an economic prognosis, so they can budget appropriately in the coming months and prepare for near-term (July 1) and future (January 1, 2023) necessary wage rate increases.
Running a business has been anything but simple during COVID-19. We’ve all heard about the “Great Resignation” and how it led to “wageflation” ( “According to Forbes, “a sudden, unexpected, and instantaneous surge in pay based on unique market conditions”). With the addition of inflation, some businesses may find themselves in an even more vulnerable position. Although the mid-year minimum wage increases (July 1, 2022) are still four months away, some jurisdictions have already announced their rates; the differences are notable and demonstrate the impact rising inflation can have on wages in jurisdictions that adjust their minimum wage in response to changes in the CPI.
The minimum wage in both the City of Santa Fe and the County of Santa Fe was CPI-adjusted from $12.32 to $12.95 per hour on March 1, 2022, an increase of just over 5%. The minimum wage in the District of Columbia will increase from $15.20 to $16.10 per hour on July 1, 2022, representing a nearly 6% increase. The greatest stated increase to date belongs to the City of Los Angeles, California, where the yearly adjusted minimum wage will rise from $15.00 to $16.04 per hour on July 1, 2022, a nearly 7% increase.
Factors that may impact why minimum wage CPI adjustments varies from one location to another range from the apparent to the obscure, and include, for example:
- The minimum pay rate prior to the change. The higher the existing minimum wage, the more likely there is to be a raise “Sticker Shock” is a rate that has been changed.
- The adjustment’s lookback period, as well as inflation throughout that time. There is a gap between the end of the lookback period and the start of the adjusted wage rate, but depending on how much time passes between these dates and how inflation performs in the interim, the rate bump could exceed inflation at the time the rate goes into effect or throughout the year it is in effect; of course, during the pre-adjustment period, the opposite could be true, with other items like food and consumer goods prices rising while the adjusted wage rate remains in effect; of course, during the pre-adjustment
- Whether CPI-U (Consumers) or CPI-W (Workers) is used in the adjustment (Workers). These are various inflation rates, which helps to explain why two cities with the same pre-adjustment minimum wage may have different adjusted rates.
- The adjustment’s working area. To be competitive, a smaller city can go beyond its borders and apply the CPI index to a much larger metropolis further away.
- Whether or not the law sets a limit on the annual rise. This could happen in general or by employing a different rate of inflation than the actual rate of inflation “whichever is less” standard (i.e., the rate of inflation or X percent, whichever is less).
Numerous further municipal mid-year rate adjustments will occur throughout California on July 1, 2022, so businesses should plan for a potential “wagequake” across the state. However, tremors may not be limited to the West Coast, as municipal minimum wage rates in the Midwest (Illinois) and the Mid-Atlantic (Maryland) will also alter. While concerns about near-term wage changes are primarily local, firms across the country should prepare for the potential that inflation does not moderate sufficiently through 2022, resulting in state-level rate increases on January 1, 2023. (or December 31, 2022, in New York). This could effect both exempt and non-exempt employees if it happens. States frequently add a multiplier to the minimum wage to determine the minimum salary required for the executive, administrative, or professional exemption to apply; a state-law inside sales exemption could face a similar minimum wage multiplication scenario. In addition, the state may annually increase the exemption’s minimum hourly rate for specified hourly professionals (or medical in California).
Although we don’t have a crystal ball to look into the future, we may forecast that things will become more difficult, just like wage and hour regulations.
Does the minimum wage increase in line with inflation?
- With current moves to raise the federal minimum wage to $15 per hour, raising the minimum wage has been an issue for decades.
- There are differing perspectives on whether increasing the minimum wage causes inflation.
- According to some economists, boosting the minimum wage artificially causes labor market imbalances and contributes to inflation.
- Other economists point out that in the past, when minimum wages were raised, inflation did not follow.
What would be the minimum wage adjusted for inflation in Canada in 2021?
“In no Ontario municipality does $15 an hour give a livable wage,” the Star editorial board noted in November, with some firms, employees, and advocates claiming the increase is years late and won’t do anything to offset the province’s ever-increasing expenses of doing business.
According to the site’s definition, the living wage is computed based on the needs of a family of four with two parents working full-time throughout the year.
Cost of living: According to a Policy Alternatives research released the same year, the living wage in Charlottetown, PEI in 2020 was $19.30 per hour.
Cost of living: According to the McGill Tribune, campaigners have been lobbying the province to raise the minimum wage to $18 to help with living expenses. Increasing living costs, according to a coalition of anti-poverty advocates, might force employees deeper into poverty.
According to a research by the CRHA, an association that represents human resources professionals, Quebec will see record wage increases this year. According to the report, employers in Quebec might offer employees compensation rises of 2.9 percent on average in 2022, the greatest gain in a decade.
Minimum wage: $11.81 (as of October 1, 2021), with annual inflationary adjustments on October 1st.
Cost of living: Once New Brunswick raises its minimum pay in April, Saskatchewan will have the lowest minimum salary in the country.
According to a report released in March by the Regina Anti-Poverty Ministry, one out of every four Regina children is currently living in poverty.
Minimum wage: $15.20 (as of April 1, 2021), plus an annual inflation adjustment on April 1st.
Cost of living: According to a 2019 assessment by the Yukon Anti Poverty Coalition, Whitehorse’s living wage was $19.07 per hour, owing to increases in the cost of living, child care, and transportation.
What is the current rate of inflation?
The US Inflation Rate is the percentage increase in the price of a selected basket of goods and services purchased in the US over a year. The US Federal Reserve uses inflation as one of the indicators to assess the economy’s health. The Federal Reserve has set a target of 2% inflation for the US economy since 2012, and if inflation does not fall within that range, it may adjust monetary policy. During the recession of the early 1980s, inflation was particularly noticeable. Inflation rates reached 14.93 percent, prompting Paul Volcker’s Federal Reserve to adopt drastic measures.
The current rate of inflation in the United States is 7.87 percent, up from 7.48 percent last month and 1.68 percent a year ago.
This is greater than the 3.24 percent long-term average.
Why should the minimum wage not be increased?
Since 2009, the federal minimum wage of $7.25 per hour has remained unchanged. Increasing it would increase most low-wage employees’ earnings and family income, pulling some families out of povertybut it would also cause other low-wage workers to lose their jobs, and their family income would fall.
The Budgetary Consequences of the Raise the Wage Act of 2021 (S. 53), which CBO evaluated in The Budgetary Effects of the Raise the Wage Act of 2021, allows users to study the effects of policies that would raise the federal minimum wage. Users can also build their own policy options to see how different ways to increasing the minimum wage would influence earnings, employment, family income, and poverty.
Does raising salaries result in inflation?
Wage Increases: What Causes Inflation? Inflation is caused by wage increases because the cost of producing products and services rises as corporations pay their workers more. To compensate for the cost increase, businesses must increase the price of their goods and services in order to retain the same level of profitability.
Is inflation bad for business?
Inflation isn’t always a negative thing. A small amount is actually beneficial to the economy.
Companies may be unwilling to invest in new plants and equipment if prices are falling, which is known as deflation, and unemployment may rise. Inflation can also make debt repayment easier for some people with increasing wages.
Inflation of 5% or more, on the other hand, hasn’t been observed in the United States since the early 1980s. Higher-than-normal inflation, according to economists like myself, is bad for the economy for a variety of reasons.
Higher prices on vital products such as food and gasoline may become expensive for individuals whose wages aren’t rising as quickly. Even if their salaries are rising, increased inflation makes it more difficult for customers to determine whether a given commodity is becoming more expensive relative to other goods or simply increasing in accordance with the overall price increase. This can make it more difficult for people to budget properly.
What applies to homes also applies to businesses. The cost of critical inputs, such as oil or microchips, is increasing for businesses. They may want to pass these expenses on to consumers, but their ability to do so may be constrained. As a result, they may have to reduce production, which will exacerbate supply chain issues.
What is the inflation rate in Canada?
For the first time since September 1991, Canadian inflation reached 5% in January 2022, climbing 5.1 percent year over year from 4.8 percent in December 2021. In January 2021, the headline Consumer Price Index (CPI) grew by 1.0 percent over the previous year.
The CPI climbed 4.3 percent year over year in January 2022, excluding gasoline, the largest rate since the index’s inception in 1999. COVID
On an annual average basis, the CPI rises at the fastest pace since 1991
Following a 0.7 percent increase in 2020, the CPI increased by 3.4 percent on an annual average basis in 2021. This was the fastest growth rate since 1991 (+5.6%).
The annual average CPI climbed 2.4 percent in 2021, slightly faster than in 2020 (+1.3 percent) and slightly faster than in 2019 (+2.3 percent).
Seven of eight major CPI components up in 2021
Transportation prices (+7.2 percent) increased at the quickest rate among the eight major components. Clothing and footwear costs fell 0.3 percent in 2021, making it the only significant component to dip in the previous year.
Higher prices in all provinces and territorial capital cities
Prince Edward Island had the highest annual average price increase (+5.1%), followed by Nova Scotia (+4.1%). Saskatchewan (+2.6 percent) had the slowest price growth among the provinces.
Annual average prices rose the highest in Whitehorse (+3.3%), followed by Yellowknife (+2.2%), and the slowest in Iqaluit (+1.4%) among the territorial capital cities.