The Problems with a National Minimum Wage


Via Matt Lewis, the American Enterprise Institute has a new chart looking at the proposed $10.10 federal minimum wage, if it was adjusted for local cost of living standards.

Likewise, why would the appropriate minimum wage be the same in, say, Birmingham, Alabama, as in Manhattan, where the overall cost of living is 2.5 times higher in comparison? A minimum wage of $10.10 per hour that is “right” nationally for the average cost of living would be way too low in Manhattan and way too high in Birmingham. The map below shows how a national minimum wage of $10.10 per hour would have to be adjusted to match the specific cost of living in various cities nationwide (and here is a more detailed map of a national minimum wage and a living wage, adjusted for the cost of housing in each U.S. county).

In New York City, the minimum wage should be $22.26 with this adjustment, while in Birmingham it would be $8.86. Therefore, the AEI and Lewis conclude that $10.10 is too high for low cost areas of the country. (And too low for places like New York City.) They propose that localities and states, not the federal government, should make these decisions.



12 thoughts on “The Problems with a National Minimum Wage

  1. I think it’s just another attempt to avoid raising the minimum wage. Though trying to make it so that more people can live on the proceeds of their work is important, it isn’t the whole of the reason for a minimum wage. You also want to avoid a “race to the bottom” with states competing on who has the most exploitable labor (the way they now compete with tax loopholes for new businesses and such).


  2. I don’t see what the 10.10 is being normalized to. Is it the national average? Why not start with 10.10 as a minimum wage, and then we can see what it would be everywhere else. So, the lowest “equivalent” wage, in Pueblo, becomes 10.10, and then they cant tell us how much higher it needs to be everywhere else to guarantee the same standard of living as in Pueblo.

    Can you live on a 10.10 minimum wage n Pueblo.


  3. They could also try looking at Davis-Bacon wages across the nation – those vary and are often (not always) related to cost of living. Those tend to be living wages.


  4. Right. $10.10 would be the minimum allowable wage, not the maximum minimum wage. States or municipalities can set a higher wage. I don’t see how their argument is one against $10.10 as the minimum wage, rather than one for expensive urban areas to set higher minimum wages. They mention absolutely nothing about livability in their discussion, which is what the purpose of a min wage is.


  5. What B.I. said. The federal minimum wage is a floor not a ceiling. NY or other expensive areas are allowed to pass their own minimum wage that is higher than the federal minimum. I don’t buy the idea that $8.86 is the “correct” minimum for Birmingham. There is no correct minimum wage other than what Congress says it is.

    It’s also worth pointing out that the same argument can be used about federal threshhold for other benefits, like what level of premiums make health care “affordable” (which determines whether you qualify for subsidies under the ACA. In the real world how much you can afford to pay for health care premiums will depend on how much the food and rent costs in your area). And yet somehow this nation has survived for decades while applying minimum federal standards for some things notwithstanding regional differences in the cost of living.


  6. Assuming good faith on the part of AEI is also sorta heroic. As Lemieux puts it (in a different context) over at LG&M, “as always conservative interest in the Equal Sovereign Dignitude of the States begins and ends with cases in which ‘federalism’ can advance substantive conservative policy goals. Collaborating with states rather than just federalizing programs doesn’t accomplish anything but give Republicans another lever to sabotage. “


  7. Doug, there’s a lot of wistful among Dems and the Great And The Good in general about Good Old Bob Michel, mildly expostulating and extracting earmarks for his district while being swept down the broad current of proggy goodness. I don’t expect him back, the Reeps will continue to look for every lever they can.

    On the minimum wage issue, there is sort of a template on the left of thinking of vile plutocrats having their children cared for by minimum wage moms whose own children are deprived, and similarly burgers flipped, etc. It’s not necessarily wrong, but I think you do better for low skill workers by stepping back and thinking, ‘how do we best make sure that work pays enough to live on, and that there is enough work?.’ We’re in a situation where more and more of the low-skill, and even medium-skill, work which people could get is being automated or off shored. Raise the minimum wage, and employers run the numbers and find that they are better off if they invest in a burger machine, or a street-paver-layer machine. We talk about the one percent, or the oh point one percent: they don’t have enough children for their nannies to be important, in the scheme of things. If you want nannying to be an important source of income, it has to be possible for the top 30 per cent to hire. In all of these cases, you are better off with a wage supplement provided by the government, so the employer faces only a percentage of the wage cost of who he is hiring. I think we are far better off to raise the EITC, and to make it payable monthly, than to raise the minimum wage. Doesn’t raise the cost of dollar meals at McD’s. More nannies get hired. And the tax base from which the money is raised is the income tax – Soros! Ellison! Gates! Koch! – which is the most progressive tax base we have.


    1. Through the 50s and 60s, a great deal of low skill work was automated and the entire non-Communist world economy rebuilt by the U.S. intentionally running a trade deficit. Yet wages rose in real and absolute terms.

      Also, if even a modest minority of the Republicans in office wanted to raise the EITC, it would be done in about five seconds.


    2. “a lot of wistful among Dems and the Great And The Good in general about Good Old Bob Michel, mildly expostulating and extracting earmarks for his district while being swept down the broad current of proggy goodness. I don’t expect him back, the Reeps will continue to look for every lever they can.”

      Is there a thought in this word salad?


      1. According to the internet, Bob Michel is a 91-year-old man from Peoria who retired in 1995. In other words, the modal Republican voter.


  8. More about the carnage increase in the minimum wage is leaving:

    Cost comes out of the people losing their jobs and the people paying more for stuff made by minimum wage. Benefits go to those people in minimum wage jobs who are fortunate enough to keep them. If you jack up the EITC, benefits go to people in minimum wage jobs, and there will be more of them, and costs are spread over the whole income-tax-paying public, of which a huge percentage is paid by the top decile. What’s not to like?


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