In 2021, San Diego’s minimum wage will increase to $14 per hour, which will be a dollar more than the state-mandated minimum wage, $13 per hour, for businesses with 25 or fewer employees -- 26 or more employees will be $14 per hour -- which is nearly double the federal minimum wage which has been $7.25 per hour since 2009. Of course, all this is on the path to $15 per hour in California by 2023, which aims to be one of the highest minimum wages in the U.S., but which will still be lower than what many businesses set as their own internal minimum wages, such as Hobby Lobby who just increased their to $17 per hour.
The federal and state level minimum wage rates have been a contentious issue for decades, and employers, employees, and politicians all seem to have varying opinions on whether a higher minimum wage would be good for workers or not. On one hand, the cost of living has continued to increase each year while wages have remained stagnant. According to Investopedia, a family of four living on the federal minimum wage would fall well below the poverty line, which is $26,200 for the 48 contiguous states. And while the highest minimum wages in the U.S. generally belong to Washington, California, and Massachusetts; the cost of living is also high in those states to justify the rates.
On the other hand, the argument for a lower minimum wage is that a family was never actually meant to live off of this wage. Rather, the federal minimum wage is mostly for teens finding their first jobs, or those working supplemental jobs in addition to their main gigs. Raising the minimum may lead to employers not being able to offer new jobs, and for automation to push low-skilled workers out of the workforce completely. And of course, the federal minimum wage is a much more acceptable hourly rate in lower-cost areas of the U.S.
Whichever side a business owner falls on, at the end of the day, there are two main considerations to keep in mind that will determine the hourly rate paid to their employees: 1) the actual law, and 2) the law of the market.
Federal and State Minimum Wage Laws
The federal minimum wage for nonexempt employees is $7.25 per hour, and to stay in line with the law, a business cannot pay any non-exempt employee lower than this rate. Exempt employees (for example, restaurant workers who earn tips) can make under this rate, but usually their average hourly income including tips must come out to $7.25 per hour or more. The ultimate authority on the federal minimum wage is the Fair Labor Standards Act (FLSA) as defined by the U.S. Department of Labor.
On the state level, over half of the states require businesses to pay more than the federal minimum, while other states at least meet the federal minimum though they may have a lower rate that would solely apply to employers and employees that are not covered by the FLSA. Examples of such employee include commission-based employees (eg. auto sales), taxi drivers, farmworkers, and live-in domestic service workers.
Here is a handy chart of state-level minimum wages for 2020:
Note that many states have nuances to their minimums, premium pay requirements (ie. overtime), and other factors so consult the government site for the latest updates.
The Law of the Market
The minimum wage is simply that: the minimum wage allowed by law. However, there is the law of the market that may be what truly defines what a business can pay in different cities and states. As mentioned above, Hobby Lobby is setting their own “minimum wage” at $17 an hour, which is more than double the federal rate, and also higher than the state-level minimum of many of the states they operate in. This raises the baseline of their local competition and will raise wages far above the minimum for job seekers in the area.
While the COVID-19 pandemic has changed the landscape, businesses in competitive cities have been far outpacing the federal minimum wage in order to attract more talent. Amazon, for example, had set their own minimum wage of $15 per hour back in 2018, and even briefly raised it to $17 for their front-line workers during the pandemic.
As the economy recovers, we expect hourly rates in most competitive cities to lean toward $15 and up, even if the federal minimum wage doesn’t change. Hiring at lower rates than this may be difficult, so employers must reassess how much they can afford to pay in order to attract the best talent.
Robert Woo is a freelance content creator for various companies from startup to enterprise-level. When not writing SEO-friendly articles, he writes and performs comedy, plays guitar, and champions the Oxford comma.