Could the federal minimum wage vary depending on the regional cost of living?


President Joe Biden has announced that the minimum wage for hundreds of thousands of federal contract workers will drop from $ 10.95 an hour to $ 15 an hour next year. This is what the president can do by decree. But raising the federal minimum wage for all American workers requires legislation from Congress, which last raised the minimum wage to $ 7.25 an hour in 2009.

Democrats are pushing to more than double to $ 15 over several years. Republicans (and some conservative Democrats) oppose such an increase, warning it would hurt the economy and low-wage workers.

Auditor Carol Hwang of Guilford, Connecticut, asked this question of Marketplace’s “I’ve always wondered”: “If you’re earning the minimum wage of $ 15.00 / hour, that’s not enough in New York and it’s way too much in Peoria. I have always wondered – would it be possible to link the minimum wage to the cost of living? Does it vary across the country? “

This concept has been presented to Congress before, and economist Gary Hoover from Tulane University thinks it’s a good idea. According to him, at $ 7.25 an hour, the current federal minimum wage leaves many full-time, year-round workers in poverty.

“What could happen,” Hoover said, “is that every region, or even state level, or maybe certain cities, index their own minimum wages, putting these people above the threshold. poverty.” He said raising the minimum wage to $ 15 an hour across the board could disrupt labor markets in areas where prevailing wages are lower. He therefore suggests increasing it modestly, then adapting to local economic conditions. “We still have to have some type of minimum. What we’re trying to do is float the minimum wage by region of the country. “

But wouldn’t it be extremely complicated for employers to manage multiple federal minimum wages?

Mike Draper is the owner of Raygun, a Midwestern clothing and home goods retail chain with approximately 80 employees. It has a store and head office in Des Moines, Iowa. “We [also] have stores in Cedar Rapids [Iowa], Iowa City, Kansas City, Chicago and Omaha [Nebraska]Said Draper, where the minimum wages set by state and local governments are respectively $ 7.25, $ 10.30, $ 13.50 and $ 9 an hour.

“There are a lot of things that vary by state, county, city,” Draper said. “The sales tax rate. Minimum wage is just another thing.

In the 1930s, southern lawmakers pushed for the idea of ​​varying the minimum wage to cover low-wage areas, according to economist Heidi Shierholz of the progressive Economic Policy Institute. And she said the policy had drawbacks similar to the drawbacks it would have today: “It would lock in low-wage conditions that exist in some areas that are the result of historic racism.

In the South, for example. “It would actually lead to a higher wage gap between blacks and whites nationwide. Because white workers are more concentrated in places with higher wages, and black workers are more concentrated in places with lower wages. ”

Shierholz, who was chief economist in the Obama administration’s Department of Labor, believes the federal government should set a single nationwide minimum wage of at least $ 15 an hour. Then state and local governments can set their own higher minimum wages, as warranted by local economic conditions and the cost of living.

Michael Strain of the conservative American Enterprise Institute thinks $ 15 is way too high and would hurt low-wage employers and workers. But – like Shierholz – Strain opposes the idea of ​​the federal government setting varying minimum wages across the country.

“The Mississippi government probably has a better idea of ​​what makes sense for Mississippi,” Strain said. “So why should we ask the federal government to set 50 different minimum wages, rather than just set one national wage floor and then let 50 different state governments decide what to do?”

For his part, Raygun owner Mike Draper has said he would agree to a substantial and widespread increase in the federal minimum wage. He said he already pays his employees above the minimum wage in the markets where he operates.

“I would prefer the minimum wage to be higher – and consistent across the country,” Draper said, “just because I think it’s the most efficient way to inject some purchasing power into the economy. ‘American economy. ”

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