If there is a single word that could describe the economy and the finances in the US and the world in 2022, my guess would be the inflation. Regardless what we blame it on - the pandemic, government's stimulus policies, supply chain, corporate greed, monetary policies, etc - massive rise in prices of everything we use on daily basis has been unprecedented to say the least. Just like the global financial crisis of 2008, super high inflation has been experiences around the globe. However, the income and wages have been lagging. In some sectors workers have even seen decline in their income. It may just be possible the wages will start catching up with the inflation in 2023. At least, it seems to be so in the state of Washington.
Starting January 1, 2023 the minimum wage in Washington State will increase to $15.74, which is a $1.25 increase from the minimum wage of 2022. Washington State has always among the states with higher minimum wage and always had higher minimum wages compared to the national minimum wage. What is different about the raising minimum wage this time is it is matching, or trying to match the inflation. The inflation number they are going by is CPI-W, which was 8.66% from August 2021 to August 2022.
In addition to the state minimum wage increases, bigger cities like Seattle, SeaTac, Tacoma, etc will be implementing minimum wages in these cities. While minimum wage would be different for smaller and bigger businesses, in Seattle it may go up as high as $18.69. Under certain condition when employers contribute to medical benefits and/or employees earn tips, the minimum wage can be slightly lower but still higher than the state's minimum wage. While these increases in minimum wage are welcome for workers, they don't necessarily represent the living wage in certain areas, especially in bigger cities.
The salaries for exempt employees will be going up as well. The exempt workers are those who get paid salaries instead of hourly wages, and are not required to be paid overtime. The exempt salary threshold for employees for employers with less than 51 employees increases to $57,293, and for employer with more than 50 employees the threshold will be $65,478. Compared to the threshold in 2021, for larger employers this means an increase of $12,735. This is almost 20% increase.
Employers in Washington will have to reevaluate what they pay to their employees to comply with the law, but also to stay competitive in the workforce market. Despite income and salaries has been lagging behind inflation, the labor and talent market has been more competitive than ever. There are currently more available open positions than the pool of job seekers. As many businesses has been facing financial challenges as economies reopened after the pandemic, one of the main challenges remains to be filling the vacancies. While economies were on hold during pandemic, this also gave an opportunity for laid off, furloughed, and still employed employees to reevaluate their career choices and goals. Some laid off workers were able to discover new talents and jobs they always wished to have, some retrained to gain new skills, others found more comfort in gig-economy markets.
Washington State minimum wage law also gives special attention to computer professionals. If computer professionals are paid by hour their minimum hourly rate will be $55.09 per hour. This is an increase from $50.72 of 2022. Most computer professionals may already be making this much and more. Special provision in the law for computer professionals demonstrates the desire by the state to retain competitive edge in the fast growing technology space. There is always demand for such professionals in the country and the around the world.
As employers will be reevaluating their pay scales and pay bands, they will have several options to comply with the law. They may choose to reclassify certain positions. For example some exempt positions may need to be reclassified to non-exempt. However, it would probably be wise to increase the wages across the board. Because as mentioned above, employers are already struggling to fill their open positions and to motivate and retain current employees. At this point with the crazy high inflation we have seen so far, it just makes sense for wages/salaries to catch up. On the other hand there are good arguments against massive raises as well, as such raises may invite even higher inflation in coming years.
My guess is most employers would choose to start increases with the wages for the lower pay bands to comply with the law. This would also lead to increases for all other positions as well to keep things fair for all. And that would require a general revision of the pay bands based on positions, tenure, market equity. These changes will not be easy to make, as most businesses are still recovering from the losses during pandemic. In fact, that is the among the main reasons why wages have been lagging behind inflation for so long. The new minimum wages serve as a wake up call to push the employers to face these challenges and take actions, which they probably wouldn't otherwise.
The law minimum wage also provides a guide for the future increases as well. It seems like next year employers will be facing similar decision making process, as the minimum wage will continue to increase based on CPI-W. Perhaps by then we will have inflation under control and prices will be more stable. Either way, it may be a good idea to consider the inflation in this equation. At least for the time being, until economy is more stable.
It is not easy to tell the future outcome of these actions. There are good arguments to be made for both increasing the wages and not. However, one thing is clear, inaction is not an option. We can only hope for positive results for people, businesses and the economy. Rest will be revealed in the future.
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