Minimum Wages: Where Are We Now, and How Can We Reach Agreement?

Over the past few years, the federal $7.25 lowest hourly pay level has stayed the same, but many cities and states have installed higher ones.

A good look at what happened this year was Paul Ausick’s “4.5 Million US Workers Get Wage Increases on January 1,” in Yahoo Finance on December 23^rd.  Given how many areas hiked their minimum pay rates, that doesn’t seem like a lot, but many were set to take effect years from now, and fewer than I had thought are receiving the bottom amount.  Ausick named 18 states, with gains ranging from Alaska’s 4 cents per hour to Maine’s $1.00, with their new levels from Missouri’s $7.85 to Washington’s $11.50.  These seem to correlate only slightly with living costs, as Alaska’s $9.84 and Hawaii’s $10.10 are less than Arizona’s and the latter only matches Rhode Island’s, and don’t seem to reflect conservative or liberal majorities either.

On results, in “The effects of 137 minimum wage hikes, in one chart” (Washington Post, February 5^th), Christopher Ingraham, with the help of Arindrajit Dube’s scholarly paper, went for a comprehensive look.  He claimed Dube found that while minimum wage raises do cause jobs below the new levels to go away, they also cause creation of a roughly equal number of positions above that level.  Jacob Vigdor, a co-author of a previous study, suggested that, at the current dollar value, raises to $11 per hour or less had much smaller detrimental effects than those $13 or more would have – not yet relevant, since no state currently mandates more than Washington’s $11.50.  On this issue we can use all the help we can get from the academic community, as many of these findings are still controversial and many more minimum wage boosts are on the way.

If the federal $7.25 rate were to be increased, there are better ways than an overall hike.  “A Smarter Minimum Wage,” by Jonathan Cowan and Jim Kessler (The New York Times, November 18^th) presented, indeed, a real improvement.  It would allow federal minimum pay levels to vary from area to area, designed by a method “that recognizes the differences in living cost and labor markets in a way that is both flexible and permanent.” The authors provided implementation specifics, designed to cover situations such as same-apartment-size rents averaging 261% Jacksonville’s level in the Los Angeles area and a dozen eggs costing over four times their Fargo cost in Oakland.  As now, Cowan and Kessler’s proposal allows communities, if they see fit, to establish higher floors than the one assigned to them.  Overall, a powerful idea that attacks what is probably the largest problem with raising the lowest pay rate.

How can we best get together on minimum wages?  We can start with three propositions, on which it is reasonable for mainstream Democrats and Republicans to agree.

First, raising minimum legal pay almost always causes some jobs to go away.  We can be more agreeable on this fact of basic economics if we do not argue on how many positions would be lost, but instead only approve the statement that it will be more than zero.

Second, increasing minimum pay levels will encourage many businesses in many industries to consider technological solutions instead of workers.  That is obvious.  Again, if we can avoid getting hung up on the exact numbers, we can reach an accord.

Third, as, per Cowan and Kessler, “we are one country, but hundreds of different micro-economies,” the best level on which minimum wages should be decided is the lowest.  State governments are better positioned to know what they think is best for their people than the federal one, county governments are better than states, and municipal governments are more suitable still.  Let people in areas differing from what surrounds them decide for themselves.  I have not yet heard of a city neighborhood wanting to set their own minimum wage, but that, which could allow for parts of the Bronx choosing a lower floor than the likes of Midtown Manhattan, could be best of all. 

Maybe this is the way to resolve intractable-seeming political issues.  Find the areas of agreement, then and only then work out the details.  What do you think?