About a month ago on CD, I presented another reason that raising the federal minimum wage to $10.10 per hour would be a really bad idea – it’s not adjusted for the huge variations in the costs of living around the country. In that post, I argued that a single “optimal” minimum wage of $10.10 per hour can’t possibly be “optimal” for every labor market in the country, and is therefore either ineffective or potentially damaging unless it’s adjusted on a city-by-city basis across the entire country. And even though high-cost, high-wage cities or states can legislate a regionally-adjusted minimum wage higher than the national minimum, low-wage, low-cost small cities around the country, can’t legislate a minimum wage that is below the national minimum. Therefore, it’s the thousands of small cities around the country that would suffer disproportionately from an increase in the national minimum wage to $10.10 per hour.
That blog post inspired a longer article with my AEI colleague Andrew Biggs titled “A National Minimum Wage Is a Bad Fit for Low-Cost Communities,” which appears today in The American. Here’s an excerpt:
Let’s ignore economic reality for a moment and assume that there might be some minimum wage, like $10.10 per hour, which will boost the incomes of low-skilled workers without lowering employment in certain labor markets. Even in that case, imposing a uniform national minimum wage on every local community will inevitably lead to adverse economic outcomes in many locations, because it artificially imposes a single minimum wage on every labor market in the United States, without any consideration of the huge variation in the cost of living around the country.
For instance, in Pueblo, Colorado, housing costs are almost 30 percent lower than in the typical U.S. metropolitan area, health care costs are 14 percent lower than average, food costs are 12 percent lower, and the overall cost of living there is 17 percent below the national average. Couldn’t a low-skilled worker in Pueblo easily get by on a lower minimum wage when their cost of living is significantly below the national average? If $10.10 was the “correct” national minimum wage, it should only be about $8.25 per hour in Pueblo, adjusted for the lower cost of living there.
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 above 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.
Bottom Line: Even proponents of the minimum wage would have to concede that a universally applied minimum wage, without any adjustments for the significant differences in the cost of living across the country, has to have disproportionate effects by location. And proponents have to also agree that a minimum wage of $10.10 per hour will be far too high for low-cost rural areas, and will have adverse effects on low-skilled workers in those communities, even if low-skilled workers in high-cost, high-wage communities are relatively unaffected.
Moreover, the administration’s current proposal calls for indexing the minimum wage forever, meaning that the adverse effects of a single national minimum wage on low-cost, low-wage communities will be permanent. Before raising the minimum wage to $10.10 per hour, we should carefully consider the long-lasting damage that will be inflicted on thousands of America’s low-wage, low-cost communities from that “one-size-fits-all” national minimum wage.