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- Democrats recently introduced a bill to raise the minimum wage to $15 an hour by 2025.
- One common metric to look at what the minimum wage should be is the Kaitz index.
- The following maps show how much the minimum wage in every state compares to 2019 median wages.
- Visit the Business section of Insider for more stories.
Democrats are currently trying to raise the minimum wage to $15 an hour by 2025. While it’s a measure that’s facing an uphill battle, some Democrats – including President Joe Biden – have continued to emphasize its importance.
That increase would more than double the current federal minimum wage of $7.25. It would also give nearly 32 million Americans a raise, including about one-third of Black workers. Under the current proposals, the minimum wage would raise incrementally, increasing first to $9.50 in 2021.
An important consideration is how each state’s minimum wage stacks up against the median wage. The ratio of the minimum wage to an area’s median wage is called the Kaitz index. The ratio can be helpful in looking at which states may benefit the most if the minimum wage was raised.
“Generally, the higher a state’s minimum-to-median wage ratio, the more workers will be affected by an increase in the minimum wage,” the Washington Center for Equitable Growth wrote in an analysis.
The Hamilton Project at the Brookings Institution wrote in a previous analysis what the Kaitz index means for wages and workers. A higher ratio means more workers earning close to the minimum wage, which means a minimum wage increase could lead to raises for a larger number of people.
"When this ratio is low-say around 0.2-minimum wage policy is not raising the wages of many workers. In contrast, a high ratio-say around 0.8-indicates a highly interventionist policy where the minimum wage is dramatically compressing differences in wages for nearly half the workforce," The Hamilton Project wrote in an analysis.
These two maps show which states would benefit the most if the federal minimum wage was $15
To calculate the minimum wage-to-median wage ratio, we used 2019 hourly median wage data from the Bureau of Labor Statistics' Occupational Employment Statistics (OES) program and the value of the minimum wage, as of January 1, in every state.
Five states, including Alabama and Louisiana, do not have state minimum wage laws and 16 states have a minimum wage equivalent to the federal minimum wage, at $7.25. Some states also have different minimum wages based on the size of the business or other requirements. In that case, we used the higher minimum wage.
The following map highlights the current minimum wage as a percent of the median wage in that state:
Based on the available data, about half the states have a minimum wage worth over half of its median wage. This includes Florida where the minimum wage is 50.2% of its median wage of $17.23 and Maine where the minimum wage is 65.9% of its median wage of $18.45.
North Dakota and Virginia had the smallest ratios. The minimum wage in North Dakota is 35.5% of its $20.44 median wage and Virginia's minimum wage is 35.7% of its $20.30 median wage.
The following map highlights how a $15 minimum would compare to the median wage in that state:
Based on our calculations, a federal $15 minimum wage would be over 60% of the 2019 median wages in all states. A $15 minimum wage in Massachussetts would be 62.1% of its median wage of $24.14, the lowest ratio among the states because Massachussetts has the highest median wage.
Minimum wage increases can bump pay for other workers as well
Ben Zipperer, an economist at the Economic Policy Institute (EPI), said in an email to Insider that when the minimum wage is increased, employers need to raise wages to retain or recruit people already making that rate.
But the "ripple" effect of the minimum wage raising - raises that those making above $15 would get as the minimum wage labor market becomes better paid - generally comes in "just a few dollars above the minimum wage, like around $17-$18 in the case of a $15 minimum wage."
But, Zipperer said, median wages are higher than that - and current trends show that median wage in 2025 is likely to be around $22. Zipperer believes a $15 minimum wage in 2025 won't impact median wages.
"In order to lift wages for the median or typical worker in the middle of the wage distribution, we need other strategies, like increasing the bargaining power of workers through unionization or making sure we run a very tight, full-employment labor market," he said.
The Raise the Wage Act of 2021, which would increase the minimum wage to $15 by 2025, would actually index the federal minimum wage to median wage growth in future years.
"How much workers will benefit from $15 MW [minimum wage] thus depends on how soon this policy is introduced, how much prices rise in the meantime, and how often it gets uprated in subsequent years," Koenig said.
What the Kaitz index for the US looks like compared to other countries and over the years
The average Kaitz index among countries in the OECD is 0.5, meaning minimum wages are about 50% of median wages, Felix Koenig, an assistant professor of economics at Carnegie Mellon University's Heinz College, told Insider in an email.
"The US rate is currently much lower," Koenig said. "To provide a point of reference, a 0.5 Kaitz index would in 2014 be equivalent to a MW [minimum wage] of $12.45 in Massachusetts and $7.97 in Mississippi." These estimates come from a Brookings Institution report that used data from the Census Bureau's Current Population Survey focusing on full-time, non-self-employed workers.
Researchers at the Washington Center for Equitable Growth examined this ratio for states and the overall US average using Current Population Survey data from 1979 to 2018. Their research suggests that there can be improvements to state minimum wages.
"Most states had much stronger minimum wages more than 30 years ago than they do today, pointing to the substantial room for increases in the minimum wage across the country," the researchers wrote.