The Washington State Department of Labor & Industries, or L&I, recently announced the state’s minimum wage will rise to $16.66 an hour next year, a 2.35% increase over the current minimum wage of $16.28. The new rate will take effect on Jan. 1, 2025.

State law directs L&I to calculate the minimum wage for the next year using the federal Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers. This index measures the cost of living for households where more than half of income comes from clerical or wage occupations.

Housing and food costs have gone up over the past 12 months, according to L&I, leading to an increase in the CPI-W.

Local jurisdictions within Washington, including cities, can set minimum wages higher than the state rate, and Seattle, SeaTac and Tukwila, among others, have done so.

The Seattle Office of Labor Standards has announced that the city’s minimum wage will increase from the current $19.97 per hour to $20.76 per hour, beginning Jan. 1, 2025.

The hourly minimum wage in SeaTac will rise next year to $20.17 from $19.71, the city announced at the beginning of the month.

As of Jan. 1 this year, the minimum wage in Tukwila is $20.29 per hour for large employers and $19.29 per hour for mid-size employers.

In Washington’s capital city of Olympia, the city council is considering raising the minimum wage to at least $20.29 – nearly $4 more than the state’s 2025 minimum wage – and adopting a Workers’ Bill of Rights. The proposal will be discussed in a study session later this month.

Earlier this year, the King County Council approved a proposal to set the minimum wage at $20.29 per hour across unincorporated King County, effective Jan. 1, 2025. The new wage will also be subject to an increase based on inflation.

Mark Harmsworth, director of the Center for Small Business at the Washington Policy Center think tank, noted the tradeoffs involved in government-imposed minimum wage hikes.

“Minimum wage increases are always hard for both employee and employer,” he said in an email to The Center Square. “The employee thinks they are getting more money in the short term, but the longer-term effect is less hours and in some cases, a loss of a job.”

He continued: “An employer’s income from products and services is finite and the only options when government mandates a wage increase are to reduce costs (employees) or raise prices. A minimum wage is not supposed to be a living wage.”

That means businesses must budget for higher labor costs, which can be especially challenging for small businesses with limited profit margins.

That was hinted at in a recent report from the Center for American Progress that shattered the notion of Washington as a business-friendly state, at least in terms of new business start-up growth.

The report showed that the Evergreen State is struggling compared to the rest of the country – including neighboring states Idaho, Oregon and California – when it comes to the number of private business establishments by county between 2019 and 2023.

King, Pierce, Snohomish, Clark and Spokane counties all experienced negative private business growth rates over the four-year period of the study.

A LendingTree study earlier this year, using data from the U.S. Bureau of Labor Statistics, found that Washington had the highest first-year business failure rate in the nation, at 40.8%, for the time period between March 2022 and March 2023.