President Biden has proposed a $15/hour federal minimum wage across all states. This despite large state differences in cost of living and wage structure. For example, the median wage in ten states is under $16 an hour, meaning half the workers in those states earn less or just slightly more than Biden’s proposed minimum wage. If a $15 federal minimum wage became law, close to half the workers in those states would also be getting a raise, so the median wage in these states would go up too. This would impose a huge hardship on the business community, especially small employers.
Let me explain. 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.
Of course the minimum wage should be increased, but there is no justification for a one-size fits all approach. It makes more sense to yoke a state’s minimum wage to its median wage, at least for the initial reset, and then adjust annually for inflation. The minimum wage in developed countries is often between half and two-thirds of the median wage. For instance, minimum wage to median wage is 54% in Australia, 55% in the United Kingdom, and 63% in South Korea. For the US, I’m thinking a minimum wage of around 60% of each state’s median wage would be reasonable, rounded up to nearest dollar and at least $10 an hour, plus with a few constraints, such as the new state minimum wage would not be less than the current one. Here’s what such a system might look like:
Not perfect but an improvement over the Biden plan.