From time to time, politicians, policy analysts, and academics will muse about whether the federal minimum wage should set region by region, rather than as one national floor. The idea is as old as the minimum wage, yet has never seriously been debated, and certainly not implemented—and with good reason. While in theory this may sound like a logical idea, you only need to scratch a bit beneath the surface to understand that it is fundamentally flawed.

Below, the Economic Policy Institute (EPI) and the National Employment Law Project (NELP) explain why a federal minimum wage adjusted to regional costs of living is a flawed proposal that will do more harm than good:

  • The purpose of the federal minimum wage is to establish a universal floor: A protection that applies equally nationwide. States and cities should be allowed to go higher as needed to reflect differences in costs of living. Many states do enact higher minimum wages. However, far too many states—predominantly, but not exclusively in the South—refuse to raise the minimum wage to reasonable levels, and in many cases have prohibited cities and counties from doing so. In this environment, there is little chance that workers in those areas will ever be protected by a living wage—except through federal action.
  • Regional minimum wages bake-in low wages to already low-wage places. Rural counties and Southern cities where wages have been depressed for a variety of social, political, and economic reasons would effectively have their low-wage status locked in. The power of the minimum wage to boost worker incomes, and thus consumer buying power, would be legislatively kneecapped for the areas that could most use a boost in local consumer demand.
  • In many low-wage areas, the predominant employers of low-wage workers are big national businesses, such as WalMart and McDonalds, who can afford to pay more. In many cases, large national corporations’ position as the predominant employer in rural or small-town areas allows them to set wages for all low-wage or low-skill jobs in the region (i.e. there are a limited number of employers for the majority of labor and therefore, they have monopsony power).
  • Recent research confirms that rural areas and small cities and towns exhibit greater labor market concentration—i.e., monopsony power—which allows them to set wages below the market rate and leads to inefficient employment levels. This has two implications: 1) Allowing for a lower minimum wage in these places accepts this wage depression and concedes a powerful tool for combatting it; and 2) Monopsony labor markets are inefficient—employers are employing fewer workers than they would if they did not have wage-setting power.
  • A federal minimum wage that locks in lower wages in Southern states would suppress wages for workers of color, especially African-American workers in the South and Latinx workers in states such as Florida and Texas.
  • The Raise the Wage Act intentionally phases in a $15 minimum wage over a six-year period, in recognition that lower-wage areas would need more time to adjust than higher wage regions. Fifteen dollars an hour in 2024 is the equivalent of roughly $12.98 in today’s dollars. As of today, there is not a county in America where a single individual, even without children, can have a secure standard of living working full-time, year-round at $12.98 per hour (EPI’s family budget calculator confirms this.) Thus, even $15 in 2024 would be inadequate for ensuring a modest, but secure standard of living—but it would be dramatically better than the current minimum wage.
  • At the historical high point of the federal minimum wage in 1968, there was greater variation in regional and state wage levels across the United States. Over the past 40 years, there has been a convergence in state and regional wages, with lower-wage areas moving up closer to national averages, though this reality isn’t widely known or acknowledged. This convergence implies that any given federal minimum-wage level will have less impact now on low-wage states relative to high-wage states than would have been the case in 1968.
  • Had the federal minimum wage grown at the same pace as productivity over the past 40 years, it would be over $20 an hour today. This indicates that the national economy has capacity for minimum wages well above where we are now. Fifteen dollars an hour in 2024 (or $12.98 in today’s dollars) would be 29 percent—in inflation-adjusted terms—above where it was in 1968. That’s a pretty underwhelming raise for 40 years of rising national output and productivity growth.

Conclusion and Recommendations

For too long, our federal policy around minimum wage has been one of utter neglect. Even when Congress has raised the federal minimum wage, it has not raised it enough to even keep up with the purchasing power that eroded since the last increase, let alone keeping up with average wages or worker productivity. Our chief goal with the federal minimum wage should be to at least restore its historic value and make sure there is a more robust wage floor for the entire country.  Setting regional differences as federal policy isn’t a way to ensure that lower cost of living states get a raise—it’s a way to ensure that the wages for those struggling in those states will remain shamefully low.

Experts from EPI and NELP are happy to speak further with anyone who would like to discuss this information in further detail. Feel free to contact David Cooper at dcooper@epi.org or Judy Conti at jconti@nelp.org.

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