Throughout this blog I have discussed what is likely to happen if we see the minimum wage increase to $15 an hour. Big business will thrive and move to automation, smaller businesses may lay off employees, raise prices, or be forced to cease operations, unskilled workers will have trouble finding job positions, and unemployment will begin to rise. These are hard facts which have already been observed in areas with a rising minimum wage such as Seattle. If $15 an hour is not an effective minimum wage, then what is?
There is, without a doubt, a wage problem in America. Families all over the country are struggling to get by on the federal minimum wage and the state mandated wages, but simply raising the wage is not going to solve any problems. Joon Suh, a writer and economist for the Third Way think tank has come up with a plan which is quickly gaining traction among other economists. Suh argues that minimum wage should be adjusted across the country to reflect the cost of living in certain areas. To put it simply, $7.25 in a high cost of living state, such as California, will not go nearly as far as it would in a low cost of living state, such as Idaho. Some states have state mandated minimums which already account for this, but the majority do not. According to data presented by the National Conference of State Legislatures, Delaware has an $8.25 an hour minimum wage, but thi number was not derived from the cost of living in the state, and it is not updated annually.
Joon Suh believes a federal “variable” minimum wage should be enacted which varies based on the given region. He believes wage tiers should be enacted, ranging from $11.90 in the most expensive cities, to $9.30 in the least expensive cities. These numbers are derived from what is known as a Regional Price Parity, or RPP for short. Suh explains RPP as follows:
RPPs are expressed as a percentage of the national average of the cost of common consumer goods and services. A score of 100 on the RPP represents the national price average. So, an area with an RPP of 110 experiences costs that are 10% higher than the national average. Residents of an area with an RPP of 85 experience costs that are 15% lower than the national average.
To demonstrate his idea, I will use Tampa, Florida and Honolulu, Hawaii as examples. According to data compiled by Suh, Tampa has an RPP of 99.5, which is 0.5% lower than the national average. This means that $8.05 in Tampa has the same purchasing power as $8.09 in relation to the national average. On the other end of the spectrum, Honolulu has an RPP of 122.5, which is 22.5% higher than the national average. Their minimum wage of $7.75 currently has the same purchasing power as $6.33.
Currently, the federal minimum wage is nearly useless. There are very few regions of the country which allow people to easily live on $7.25 an hour, so states take it upon themselves to set the minimum wage to what they believe is appropriate. The issue is that states can set the minimum wage to almost anything they want. Georgia and Wyoming, for example, have a state minimum wage of just $5.15 an hour (NCSL). According to data presented by NCSL, 17 states have a minimum wage different from the federal minimum, but have no clear reasoning for doing so.
This system is a mess, and it is time that something is done about it. Suh’s approach would ensure that workers all across the country have access to a fair minimum wage no matter what region they live in.
“State Minimum Wages | 2016 Minimum Wage by State.” State Minimum Wages | 2016 Minimum Wage by State. N.p., n.d. Web. 14 July 2016. http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx
Suh, Joon. “Doing the Right Thing, the Right Way: A Regional Minimum Wage.” Third Way. N.p., 11 Feb. 2016. Web. 14 July 2016. http://www.thirdway.org/report/doing-the-right-thing-the-right-way-a-regional-minimum-wage