Arizona’s minimum wage now tied to changes in Consumer Price Index

PHOENIX (AP) — Concern about the inflation rate is widespread following a jump to a four-decade high earlier this year. In Arizona, rising inflation has an added twist: the state’s minimum wage is now tied to changes in the Consumer Price Index.

If prices continue to rise robustly, lower-income workers here could get a significant wage boost — about one-third of all Arizonans earn the minimum or just a few dollars an hour more, according to a recent report. If the recent trend continues, Arizona’s minimum wage could increase by more than $1 and approach $14 an hour at the start of 2023.

Yet a wage hike at or near the current inflation rate could mean more belt-tightening for restaurants and other businesses, some of which could close.

“Even prior to the pandemic, restaurants have always operated on thin margins,” said Melissa Maggiore, owner of the Italian Daughter restaurant in Scottsdale, in an email The Arizona Republic. A big hike could lead to job losses, fewer hours and reduced service including more quick-serve formats, she said.

With the minimum wage tied to consumer price levels, higher inflation here could become self-perpetuating, at least compared with the many states where this isn’t the case. Inflation already is running hotter in metro Phoenix, 11% annualized through April, than in any other large urban area.

However, the state’s minimum wage increases are pegged to national inflation, not that at the local level. The U.S. rate is 8.3% currently.

Arizona has one of the nation’s highest minimum wages following passage of Proposition 206 by statewide voters in 2016. That ballot measure bumped up the minimum wage in four specified steps from $8.05 an hour in late 2016 to $12 an hour by Jan. 1, 2020.

Since then, increases are tied to changes in the national Consumer Price Index for urban workers, a widely followed U.S. inflation gauge. Arizona’s minimum-wage inflation calculation runs from September through August each year, with adjustments taking effect the following January.

For example, at the start of 2021, Arizona’s minimum wage increased moderately to $12.15 an hour from $12 in 2020, reflecting a slight 1.3% bump in U.S. inflation from September 2019 through August 2020.

Inflation then perked up to 5.3% over the 12 months through last August, pushing up Arizona’s minimum wage to $12.80 an hour starting this year.

Now inflation, as noted, is running at an 8.3% annual rate nationally, through April. If it continues at that pace through August, Arizona’s minimum wage would jump to about $13.85 an hour by Jan. 1, 2023. The Industrial Commission of Arizona officially will announce the new wage later this year.

Kelly Cooper, owner of BKD’s Backyard Joint in Chandler and two Valley locations of the Melting Pot, fears inflation could keep rising and that restaurants could face a minimum wage increase of 10% or higher by the August calculation date.

Plus, he’s concerned that there’s no provision under Proposition 206 for Arizona’s minimum wages to decline should inflation cool off sharply in the event of a recession. An elevated minimum wage could result in more job losses and business closures than otherwise would happen, making the next recession even worse, he predicts.

Economists are alarmed at the sudden uptick in inflation for goods and services beyond just labor expenses. Consumer costs have risen fairly steadily across the board, and shortages have appeared for products ranging from semiconductors and rental cars to baby formula.

The Federal Reserve is attempting to slow increases in price levels by raising interest rates. Some economists don’t think this strategy will work, though it’s too early to tell.

Arizona doesn’t have the nation’s highest minimum wage but it’s among the leaders. States that have or soon will have higher minimums include California ($15 an hour), Washington ($14.49), Massachusetts ($14.25), Connecticut ($14), New York ($13.20) and New Jersey ($13), according to a list compiled by the Labor Law Center.

Minimum wages have risen or will increase in about half of all states this year, the group said.

Yet the federal minimum has stayed at $7.25 an hour since 2009 (or $2.13 for employees who regularly receive tips). It remains in effect in 20 states, mainly in the South and Midwest.

In addition, some cities have their own minimums set above the levels in their states, including Flagstaff ($15.50) and Tucson ($13) in Arizona.

Despite a relatively high minimum wage here, 33.7% of Arizonans earn $15 an hour or less — slightly above the 31.9% share nationally, according to a recent report by Oxfam America. Workers in this group include tipped employees, farmworkers, domestic caregivers and students.

Also, people who are Black or Latino are disproportionately represented among $15-or-less workers, according to the report.

Arizona’s current minimum wage doesn’t apply to all workers. Exemptions include people employed by a parent or a sibling, those who work as a babysitter in an employer’s home on a casual basis and people employed by the Arizona state or federal governments. Another exemption applies to individuals working at small businesses that generate less than $500,000 in annual revenue.

Also, an employer may pay tipped employees — those who customarily and regularly receive tips or gratuities — up to $3 an hour less than the minimum wage, provided the employer keeps records showing that workers received at least the minimum for all hours worked.

In addition to higher minimum wages, Arizona’s Fair Wages and Healthy Families Act, which voters passed as Proposition 206 in November 2016, entitles employees to accrue paid sick time.