Tuesday, January 6, 2015

The Great American Experiment: 19 States Raising Their Minimum Wage January 1

As of January 1st, 19 states increased their minimum wage.  Three other states and Washington D.C. will do so later this year.  The new wages vary; ranging from $8.75/hour to a high of $10.50/hour in Washington D.C.  The current federal minimum is $7.25/hour and was established in 2009.  Prior to this January's hike, some states like Michigan had already raised their minimums.

First let me say that it is a good thing that the states are making individual decisions on increases.

I would rather have the states do it on their own than the Federal government step in with their typical one-size-fits-all bullying.  We don't have one economy in this country.  Each state has its own with its own average salary and its own cost of living.  For example, the average per capita income in Mississippi is just $20,618 or about $9.91/hour.  In New York, it is $32,382 or $15.57/hour.  In addition, within each state, the average per capita income varies widely between rural and urban areas.  For example, in the state of California, the county-based incomes range from $54,605 ($26.25/hour) in Marin Country to just $16,593 ($7.98/hour) in Imperial County.

However, average salaries aren't the only problem with trying to federalize the minimum wage.  The costs of living also varies widely.  The cost of living index in Manhattan is 216.7 or almost 117% higher than what an average American would pay for things with an index of 100.  Then, in a city like McClellan, Texas, it is 85; meaning that it is 15% cheaper to live in that city compared to what the average American needs to spend to live.

Now, I said this will be a Great American Experiment because, for the first time since 2009, when every state got a raise in the minimum wage, we will be able to look at the impact on those 19 states in isolation and without the added confusion of a recession. First of all, the vast majority of Americans will only get poorer when the minimum wage is increased because the cost of hotel, fast food, groceries, etc. will all go up while most American's salaries have stagnated; this despite raising the minimum three consecutive years from 2007 to 2009.  If it is too costly for Americans to travel and dine out, there may be higher unemployment and, obviously, we will see if this is the case in the states with raises.  The only fly in the ointment is the fact that gasoline prices have been falling; meaning that any increases in other costs of living will be offset by lower prices at the pump.

The old theory, too, that raising the minimum wage will lift millions out of poverty will also be tested.  In 2006, before it was set to be increased, there were 36 million Americans in poverty.  By 2010, that number rose to 46 million. One could easily argue that the raising of the minimum wage might have negatively effected the problem of poverty.  But, a little thing like the late 2007 to mid-2009 recession may have had a lot to do with that.  With 19 states raising the minimum wage in a somewhat healthy economy, we will finally see the real answer to the poverty question.

So, in essence, those 19 states will be our petri dish.  If overall, America benefits from those raises and there are no downsides, then I would say that raising the minimum wage would be a good thing on a national basis.  But, instead of a one-size-fits-all solution of $10.10 across the board, I would offer that a wage based on some percent of the average per capita salary would be more appropriate.  For example, if we wanted the minimum wage to always be 70% of whatever the state's average wage equals, New York would be at $10.89.  In the poorer state of Mississippi, it would be $6.94.  But, since the national amount is already at $7.25, Mississippi would remain at that rate until such time that the average per capita wage is high enough to trigger an increase.

Also, by setting the minimum wage at 70% of average incomes, the increase becomes indexed or, in other words, raised automatically each year to account for higher salaries.  For states that see their per capita incomes drop in any given year, it would remain the same as in the previous year.  All in all, a system like this would be fairer to the workers in each state and would take the issue out of the hands of the politicians.  Also, a good thing.


19 States With Higher Minimum Wage on January 1, 2015: http://dailysignal.com/2015/01/01/state-raise-minimum-wage-today/

Michigan Minimum Wage: https://www.google.com/search?q=michigan+minimum+wage&ie=utf-8&oe=utf-8

For most workers, real wages have barely budged for decades: http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/

Mississippi - State and County QuickFacts: http://quickfacts.census.gov/qfd/states/28000.html

New York QuickFacts from the US Census Bureau: http://quickfacts.census.gov/qfd/states/36000.html

California locations by income: http://en.wikipedia.org/wiki/California_locations_by_income

Cost of Living Index—Selected Urban Areas, Annual Average: http://www.census.gov/compendia/statab/2012/tables/12s0728.pdf

 Fact Tank - Our Lives in Numbers October 9, 2014 For most workers, real wages have barely budged for decades: http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/

Persons Below the Poverty Level 1975-2010: http://www.infoplease.com/ipa/A0104525.html


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