The States With the Best & Worst Minimum Wages

NEW YORK (MainStreet) – Let’s face it: We don’t have a free labor market in this country. But neither do 90% of the other countries in the world that enforce minimum wages on businesses to help keep food on the table of even the most unskilled of workers, according to the International Labor Organization.

In times of high unemployment, the question of whether the minimum wage helps or hurts the job situation inevitably finds its way into the public debate. And just as Americans are divided over the issue, so too are the states, which are given the freedom to set their own minimum wages, to an extent.

The federal minimum wage, currently set at $7.25 per hour, overrides any state that sets the bar lower, but only for workers in certain industries or for companies with at least $500,000 in annual volume.

As the map above shows, most states are in line with the federal government in determining the least amount of money that a worker should get paid for an hour of work. Five states (Alabama, Mississippi, South Carolina, Tennessee and Louisiana) defer to the feds by not setting their own minimum wages at all, but the rest cover a wide spectrum of hourly rates, from just more than $5 for the lowest to more than $9 for the highest.

Here we take a look at the four states that set minimum wages below the federal rate, and the six that pay the highest minimum hourly wages in the country.

4th Lowest Minimum Wage: Arkansas

With a minimum wage of $6.25 per hour, applicable only to businesses that employ four or more workers, Arkansas did not start out with the rare distinction of setting its wage floor lower than the federal government’s level. In fact, when it raised its rate from $5.15 to $6.25 in 2007, the move put its wage higher than the federal level for the following two years.

While the rate has remained unchanged since then, rising federal levels have overridden Arkansas’ perceived miserliness for at least a portion of the state's workforce. And though a low unemployment rate of 7.7% in December beat the national average of 8.5% at the time, the state’s 18.7% poverty rate in 2010 was 3.4 percentage points higher than the national average.

3rd Lowest Minimum Wage: Minnesota

At $6.15 per hour, Minnesota goes one step further than Arkansas with its minimum wage, but the story doesn’t end there. Minnesota is one of just three states (along with Oklahoma and Montana) that maintain a two-tiered minimum wage. The $6.15 rate is applicable to businesses with annual receipts higher than $500,000 only; smaller enterprises have a wage floor of $5.25 in the state.

While the unemployment number is subject to a number of factors, minimum wages are part of that story. The situation in Minnesota beats the national level by 2.8 percentage points: The state had unemployment of only 5.7% in December. Combine that with a poverty rate of 11.5% in 2010 – 3.8 percentage points lower than the national average – and it appears as if Minnesota is doing rather well regardless of the levels it has chosen for its minimum wage.

Lowest Minimum Wage (tie): Wyoming, Georgia

For Georgia and Wyoming, a minimum wage of $5.15 per hour earns the distinction of the lowest on the books anywhere in the U.S. And while both states have the same idea about minimum compensation, the economic situation in the two is quite different.

Georgia’s 9.7% unemployment in December and 2010 poverty rate of 18% are both considerably higher than national averages, while Wyoming’s small population is quite a bit healthier in comparison. Wyoming’s 2010 poverty rate was one of the lowest in the nation at 11.4%, and its unemployment rate of 5.8% in December was also one of the best.

Next up: the highest minimum wages in the country.

5th Highest Minimum Wage (tie): Connecticut, Illinois, Nevada

A minimum wage of $8.25 per hour, $1 higher than the minimum the federal government thinks a worker in the U.S. should be paid, puts Connecticut, Illinois and Nevada higher than 45 other states in the ranking. And while this generosity has likely contributed to those states’ lower-than-average poverty levels in 2010 (Connecticut: 10.1%; Illinois: 13.8%; Nevada: 14.8%), the employment picture is not so rosy.

Connecticut’s 8.2% unemployment rate in December was the only one of the three to beat the national average of 8.5%, while Illinois posted unemployment of 9.8% that month and Nevada took the prize of worst-in-the-nation unemployment of 12.6% at the end of the year.

3rd Highest Minimum Wage: Vermont

Vermont has long been a leader in the national employment picture, posting one of the lowest unemployment rates in the nation for more than 10 years running. It has also raised its minimum wage, currently $8.46 per hour, nine times out of the past 12 years, and was paying its residents a minimum of $7.25 per hour, which became the federal rate in 2010, as far back as 2006.

With 12.4% of households at the poverty level in 2010 and an unemployment rate of just 5.1% in December, Vermont remains steadily ahead of the curve.

2nd Highest Minimum Wage: Oregon

While it can’t compete with Vermont on most financial metrics, Oregon’s $8.80 minimum hourly wage makes it the second most generous in the nation. After starting the new millennium with three straight years of a minimum wage of $6.50 per hour (during which time the federal rate was steady at $5.15), Oregon began yearly increases for every year except 2010, keeping ahead of any increase in the federal minimum wage.

Highest Minimum Wage: Washington

The only state to set its minimum wage higher than the $9 per hour mark is Washington, which at $9.04 per hour beats its neighbor to the south by almost a quarter. Even more impressive, Washington lawmakers have raised that minimum wage every year except one since 2001, despite average or higher-than-average unemployment during that time. Most recently, the unemployment rate in Washington was 8.5% in December, matching the national average for the month.

Washington has held the honor of the highest minimum wage ever since 2004, when the state took the crown from Alaska.

Greg Emerson is an editor/writer for MainStreet. You can reach him by email at greg.emerson [at] thestreet.com, or follow him on Twitter at @emersongreg.

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