This is an exploration. I’m looking for patterns, relationships, and possible policy implications. Here’s the data:
Explanation of Terms:
Median Hourly Wage: The median hourly wage is the wage at which half the workforce is paid more and half the workforce is paid less.
Minimum Wage: The minimum allowable wage in many states is $7.25 per hour, which has been the federal minimum wage since 2009. Several states have minimum wage rates that are higher than the federal rate.
Fair Market Rents: FMRs are published annually by the US Department of Housing & Urban Development. FMRs are the location-specific 40th percentile of gross rents for typical, non-substandard rental units. That means 40% of the rents in that area are lower than the FMR.
Supplemental Poverty Measure: The SPM considers after-tax income, government transfers, cost of living, and other factors in determining a state’s poverty rate.
Per the above table, a $15 minimum wage wouldn’t be much higher than the median wage in several states. However since my median wage figures are from 2016 and the US median wage has been increasing around 2% a year, let’s bump up the state median wages by 10%. That would make the average median hourly wage $16.75 for the above low-paying states and $24.28 for the high-paying states. I still see a problem: the current median wage in the low minimum-wage states is just $1.75 more than the proposed $15 minimum wage. In other words, half the workers in those states would be earning within $2 of the new minimum wage. But this wouldn’t actually happen, because workers above the minimum wage rate would also be getting a raise, so the median wage would go up too.
That’s partly because workers expect to earn more as they acquire experience and improve their skills and employers want to pay those workers more to keep them happy and productive. So if employers increase the hourly wage for their lowest paid workers, many higher-wage workers would also expect a raise - a financial burden that would fall most heavily on employers in states with a low minimum wage. For example, imagine an employer with 10 employees in a state where the minimum wage is $8/hour and another employer in a state where the minimum is $12/hour. Both employers start workers at minimum wage and then increase their pay $1/hour every year. Both employers have hired a new employee every year and no employees have quit or been fired in the last 10 years. Now compare the financial effect of increasing the minimum wage to $15/hour*:
Bottom line: if the federal minimum wage were increased to $15/hour for all states, employers would bear the greatest financial burden in the low minimum-wage states. If the cost of living were comparable across states, that might be ok. But it’s not comparable. That’s why my first table included the Fair Market Housing rates for one-bedroom apartments, which ranged from $569 in Mississippi to $1500 in Washington DC. I included the state poverty rates to show that, on average, states with the lowest and highest minimum wages had similar poverty rates.
Of course the minimum wage should be increased, but there is no justification for a one-size fits all approach.
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* Formula for weekly payroll per employee: hourly rate x 40 + 10% (payroll-related taxes)