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Thoughts From Last Week
A one-time acceleration due to state minimum wage increases in January should not be interpreted as a sign that the Fed is losing its battle with inflation.
While the federal minimum wage will likely remain unchanged from $7.25, 27 states and D.C. planned state minimum wage increases for 2023. On January 1, 23 increases went into effect that could drive wage growth higher in January’s jobs report. The increases thus far have raised the U.S. population-weighted average minimum wage to $10.87 from $10.45, a 4.0% increase. Once the remaining increases are carried out, that average wage will rise to $10.96 for a total increase of 4.8%.
Regionally, scheduled increases vary: the Northeast will experience the fastest growth compared to last year of 6.1%, while the South, with only four states and D.C. raising their minimum wages, will experience the slowest growth of 3.4%. The West and Midwest will experience increases roughly in-line with the national average.
These increases could exert upward pressure on wages more broadly, even for those workers earning above the minimum wage. Wage growth has been a critical data point to the Fed as a signal of inflationary pressure, particularly in the services industries. Average hourly earnings have rolled over in the last four jobs reports and a one-time acceleration due to state minimum wage increases in January should not be interpreted as a sign that the Fed is losing its battle with inflation. The broader dynamic of slower wage growth and moderating inflation is still intact, supporting a smaller 0.25% rate hike at the FOMC meeting this week.
Source: BLS, Census Bureau, D.C. DOES, EPI, Paycor, J.P. Morgan Asset Management. Population estimates are as of July 1, 2022. The federal minimum wage set the lower bound for state minimum wages. State minimum wages based on firm size were adjusted using the distribution of private sector employment by firm size class data as of 1Q 2022.