What Is the Minimum Wage? – NerdWallet

The federal minimum wage of $7.25 per hour has not budged since 2009 despite a steady increase to the costs of living, which has accelerated into skyrocketing inflation over the past year.

Thirty states and Washington, D.C., have minimum wages set above the federal minimum. 

The minimum wage has not kept pace with inflation when you look at nominal wages (not adjusted for inflation) versus their spending power in 2022 numbers (adjusted for inflation). 

Because the federal minimum wage has not changed since 2009, its real purchasing power has decreased dramatically. Decreased purchasing power means it’s even more difficult for workers to live on a minimum wage.

The minimum wage varies by state. Five states have no minimum wage laws, but the federal minimum wage still applies; those include Alabama, Louisiana, Mississippi, South Carolina and Tennessee. In certain states, the minimum wage is more, depending on whether a particular city or region within that state sets a higher minimum.

No. The federal minimum wage is set by the government and does not directly correlate with inflation. The current inflationary conditions were not caused by the minimum wage, which has not changed since 2009.

All workers covered by the Fair Labor Standards Act must be paid at least the federal minimum wage and may earn more if the state minimum wage is higher.

According to the Department of Labor, workers not covered by the FLSA, who may earn less than minimum wage, include:

• Employees of certain seasonal amusement or recreational establishments.

• Employees of certain small newspapers or newspaper delivery workers.

• Seamen employed on foreign vessels or employees engaged in fishing operations.

• Companions to older people or the infirm.

• Executive, administrative and professional employees.

Those workers are also exempt from overtime pay. (Learn more about who is — and isn’t — eligible for overtime pay on the Department of Labor website.)

Tipped employees include those who rely on tips from customers to supplement their wages. A tipped employee typically receives more than $30 per month in tips, according to the Department of Labor.

Tipped employees must receive a minimum wage of $2.13 per hour, known as a cash wage. That cash wage is combined with tips to reach the federal minimum wage of $7.25 per hour. Those tips are considered a “tip credit,” which allows employers to pay employees below the federal minimum wage.

Employers can credit up to $5.12 per hour in tips against a worker’s earnings. If an employee’s wages (at least $2.13 per hour) plus tips is less than $7.25 per hour, their employer is required to make up the difference.

Minimum tipped wages and maximum tip credits vary by state and even city.

Washington, D.C., has the highest minimum wage for tipped workers in the country. As of the 2022 election, Washington, D.C., residents voted to incrementally increase the minimum wage for tipped workers each year until July 1, 2027. At that point, the tipped minimum will be set to match the same minimum as the nontipped minimum wage that year. The current minimum wage is $5.35 per hour for tipped workers and $16.10 for nontipped workers.

Each year, 14 states plus Washington, D.C., automatically set minimum wage increases according to the growth of inflation, usually tied to the U.S. Bureau of Labor Statistics’ consumer price index, or CPI. If the index doesn’t change, neither does the minimum wage. And some states have annual caps on annual inflation increases, such as California (3.5%), Minnesota (2.5%) and Vermont (5%).

States that tie minimum wage increases to inflation adjust their wages as of Jan. 1, unless otherwise listed, according to the Economic Policy Institute. Those states include:

• District of Columbia (adjusts July 1).

• New York (adjusts Dec. 31).

Connecticut is set to index wages to inflation as of Jan. 1, 2024. 

The median household income for a single individual is $70,784, according to the most recent U.S. Census Bureau population survey data for 2021.

Median income in the U.S. has outpaced the consumer price index since 2012. The gap widened most significantly from 2018 to 2019. But the gap is beginning to narrow as of the close of 2022 because of a rapid increase in the CPI.

Women consistently bring home less money than men: In 2020, women earned 83 cents to every dollar men earned, according to the Census Bureau.

Among men and women who worked full time, year-round in 2019 (the most recent data from the Census Bureau’s American Community Survey), the national median earnings wage gap was $10,150, with men earning a median of $53,544 and women earning a median of $43,394.

The wage gap widens when you look at each state. The states with the largest median wage gap between men and women include:

• District of Columbia: $16,032.

The states with the smallest median wage gaps between men and women include:

A gender pay gap also exists for women at lower levels of education. Among workers with less than a high school diploma, women earned 66 cents for every dollar earned by men, according to the U.S. Government Accountability Office.

Here are the most recent median earnings differences by degree, according to gender and race, compiled by the National Center for Education Statistics.

Wage inequities are stark when broken down by race or ethnicity, Department of Labor data shows. When compared with every dollar earned by white workers:

• Hispanic/Latino workers earn 73 cents.

• Black workers earn 76 cents.

• Native American/American Indian workers earn 77 cents.

• Multiracial workers earn 81 cents.

• Asian-Pacific Islander workers earn $1.12.

The gender pay gap is exacerbated further by the racial wage gap, according to data by the Government Accountability Office. When compared with every dollar earned by white men:

• Hispanic/Latina women earn 58 cents.

• Black women earn 63 cents.

• White women earn 79 cents.

• Asian women earn 97 cents.

Gender and gender identity among LGBTQ+ workers also tends to affect earnings, according to a 2021 analysis of salary data by the Human Rights Campaign. LGBTQ+ workers tend to earn 90 cents for every dollar a typical worker (as in, full-time private and public sector nonfarm workers). According to the Human Rights Campaign data, when compared with every dollar earned by a typical worker: