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Should National Minimum Wage Standards Vary By Region?

The first minimum wage law was passed in Massachusetts in 1912. Since that time, the legality, logistics, and effectiveness of a minimum wage have been hotly debated. There is a new push to change the one-size-fits-all minimum wage regulations in favor of a more flexible, and possibly more effective, regional minimum wage.

Although the Federal minimum wage is set on a national level, cost of living varies drastically across the nation. A regional minimum wage would level the playing field for those who need it without artificially inflating the cost of labor in other areas.

Examining Average Cost of Living

A study of the average cost of living across the United States compares the cost of housing, utilities, groceries, transportation, healthcare, and miscellaneous expenses in each U.S. state. The results bring to light the radical difference in the amount of income needed to maintain the same standard of living in various areas. Consider the following examples.

In California, you can expect to pay 38.8 percent more than the national average for your overall living expenses. In this state, housing costs 92.7 percent more than the national average. Washington, DC's cost of living is 49.2 percent higher than the national average, and Alaska and Connecticut are 31.6 and 30.7 percent higher, respectively.

On the other hand, the cost of living in states like Texas, Georgia, and Kansas is well below the national average. Residents of Iowa enjoy a cost of living that is 18 percent lower than the national average. It's clear to see that one standard wage base may not be the most sensible solution.

State's Influence on Minimum Wage

While the Federal minimum wage for most workers has been stuck at $7.25 per hour since 2009, individual states have the power to adjust the rate upwards. As of January 1, 2017, twenty states have increased their minimum wage so it is higher than the national minimum. Some have instituted automatic adjustments while other increases occur through legislation or referendum.

Although this starts to address the problem, there are still some issues left on the table. Within an individual state, the cost of living in particular regions can be far higher than in others. In big cities, for example, the cost of basic expenses like rent and groceries is usually much higher than it is for those living in rural areas.

A Different Approach

A new method for calculating minimum wage based on average expenses in a particular region would not be difficult to execute. Jonathan Cowan and Jim Kessler, president and senior vice president of centrist policy institute Third Way have suggested the following solution.

To start, areas with a cost of living close to that of the national average would be granted a minimum wage that is sufficient to keep as much of the population as possible above poverty level. This wage should be objectively measured against the current labor market and adjusted as needed to ensure it keeps up with inflation.

A rate of one half of the average national median wage for non-supervisory hourly employees would create a reasonable base. Under this plan, in January of this year, the base would be $10.90.

To keep the purchasing power for minimum wage earners equal across the country, five separate regions would be defined. The most expensive places to live would see a 15 percent increase to the minimum wage, while the lowest-cost regions would receive a 15 percent decrease. This means that in areas like New York City the wage would be approximately $12.55 while in Valdosta, Georgia, it would be $9.25.

All rates would adjust annually based on the new national median wage.

The Bottom Line

While some wage advocates like the Fight for $15 coalition argue for a standard $15 per hour minimum wage across the board, a tiered method like the one described above offers a far more sensible solution. You can assume that changes to the system will be made at some point, but there are currently no official proposals on the books. For the time being, employers will have to adopt a wait-and-see attitude while working within the constraints of the current status quo.

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