How minimum wages are indexed to inflation

Some minimum wages change only when a legislature votes. Others move every year without a vote, because the statute that set them also wrote in a formula. On the state minimum wage pages here, the second kind shows up as a DOL note reading that the rate is “adjusted annually based on a set formula.” This page explains what sits behind that sentence.

Fixed rates

The federal minimum has been $7.25 an hour since July 24, 2009, and nothing in the Fair Labor Standards Act adjusts it automatically; a new figure requires an act of Congress. The $4.25 youth wage is fixed the same way, and DOL’s fact sheet states plainly that it does not rise when the regular minimum does. A state whose law simply names a dollar amount works like the federal one: the number stays until the law changes.

Indexed rates

An indexed minimum wage is one whose statute says, in effect, “each year, change the rate by the change in a named price index.” The statute chooses the index, the months it compares, how to round, and sometimes a cap or a floor on the annual change. Several states also pair indexing with a schedule: fixed steps for a few years, then the formula takes over. DOL’s notes record that pattern for at least one state, giving the date of the final scheduled step before annual adjustment begins.

DOL’s table does not print the formula. Its note says only that an adjustment happens annually, and in some cases on what date, July 1 for some. The index, the comparison period and the rounding rule are in the state statute or in the annual notice the state labor department issues, which is also where the new figure is announced before it takes effect.

The indexes a statute can point to

BLS publishes several consumer price indexes, and a state’s choice among them is part of its formula. The CPI for All Urban Consumers (CPI-U) covers households in urban areas and represents over 90 percent of the population; it is the index usually meant by “the CPI.” The CPI for Urban Wage Earners and Clerical Workers (CPI-W) covers a subset, about 30 percent of the population, in households where most income comes from wage-earning or clerical occupations; it is widely used in escalation agreements. BLS also publishes indexes for the four census regions and for a set of metropolitan areas, so a state can tie its rate to a regional index rather than the national one. All of these are published with the base period 1982 to 1984 set to 100, and BLS notes that the national CPI-U and CPI-W are not routinely revised after publication, which matters for a formula that must be applied once and stand.

The index measures the average household’s price experience, not any individual’s, a point BLS makes in its own explanation. An indexed minimum wage therefore tracks a statistical basket, and in a year when that basket is flat the formula produces little or no change.

Rates that move because another rate moved

Indexing has a knock-on effect on figures defined as a share of the minimum. Where a state sets its tipped cash wage as a percentage of its minimum, an annual adjustment to the minimum changes the cash wage too; the tipped wages page covers that structure. Some states’ overtime exemption thresholds are multiples of the state minimum, so they move as well.

Local ordinances

Many city and county ordinances in the local registry adjust annually by a consumer price index, often a regional one. Where an ordinance states a formula without a published amount, the local page here shows “by formula” until the jurisdiction posts the figure, and the data watch removes rows that go more than a year without re-verification.

What this site does

Nothing on this site computes an indexed rate. Each state page prints the figure DOL lists, with DOL’s revision date and the date it was verified here, and the DOL note where one exists. When a state announces its next adjustment, the page changes when DOL’s table changes. For the broader question of what a wage buys over time, see nominal versus real wages and the real earnings series, and for how an occupation wage compares with the local floor, the state’s own table.

What this page does not decide

Which index, which months and which rounding rule a given state uses, and the exact rate that results, are set by that state; its labor department’s notice is the authority.