Minimum Wage is Not One-Size-Fits-All

Last week, voters in New Jersey overwhelmingly approved an increase to their state’s minimum wage from $7.25 to $8.25 an hour. The measure passed on a ballot initiative with 60 percent of the vote. This is not surprising, because a recent Gallup poll finds

that about three-quarters of people support raising the federal rate to $9 an hour. As I have argued elsewhere, widespread support for the minimum wage is based on more economic fiction than fact coming from its proponents. 

Twenty-one states and the District of Columbia have a minimum wage higher than the federal level of $7.25 an hour. Fourteen other states besides New Jersey increased their minimum wage this year—either by legislation or inflation adjustments. 

President Obama recently proposed raising the federal minimum wage to $10.10 an hour, a 40 percent increase, and pegging that rate to inflation. This would be the first federal increase since 2007. The President’s proposal is higher than any state’s current level—Washington has the top rate of $9.19 an hour. 

New Jersey’s minimum wage hike is misguided (since workers whose skills are not worth $8.25 an hour may lose their jobs), but increasing the federal rate would be far worse. Labor and living costs differ drastically throughout the country, so it makes no sense to apply a universal wage law. Such a law goes against the principles of federalism, principles integral to preserving individual freedom and limited government which have served America well. 

States should be able to choose whether or not to have a minimum wage and, if they choose to have one, should determine the appropriate rate. This allows states to experiment and discover what works, which differs based on region of the country. 

This federalist approach would be beneficial for two main reasons.

First, it is to be expected that the costs of minimum wage laws would vary according to the unique social and economic conditions that characterize particular localities. It is not difficult to imagine that the value for labor in one city happens to bottom out at roughly the federal level. Since employers are only “forced” to pay what would otherwise be rational, the effects of minimum wage on employment are negligible. On the other hand, if the value of labor in another city is significantly lower than the minimum wage, the costs of a universal federal rate are noticeably higher.

Second, because cost of living is substantially based on location, the benefits to employees from minimum wage rates vary. If the cultural and economic differences that distinguish rural Oklahoma from the District of Columbia matter for policy issues, allowing Oklahoma to pursue different programs than D.C. makes perfect sense. Since it is 70 percent more expensive to live in D.C., the same economic standards should not be applied to both areas. With the federal government setting the minimum wage rate, localities cannot respond to relevant circumstantial factors. This means legislators whose goal is to help the poor through federal wage laws are likely making at least some of the poor (those who can now not find work) worse off than they would be under different legislation—or under no legislation at all. 

If states were allowed to set their own minimum wage, they could also permit individual localities that flexibility. Already, cities such as San Francisco and Albuquerque have higher minimum wages than do California and New Mexico, and mayor-elect Bill de Blasio campaigned on allowing New York City to do the same. What is needed is the ability of cities or counties to move in the other direction and set lower minimum wage requirements, or remove them entirely.

Simply put, situations vary depending on economic conditions. State and local policy makers should be free to pursue those programs that best conform to their unique circumstances. Yes, most residents of Seattle, with the exception of teens and low-skill workers, might not lose jobs under a higher federal minimum wage, but agricultural workers in Arizona might well be forced out of work.

Allowing states to set their own minimum wage laws is preferable to federal oversight. States would then be free to rid themselves of  potentially harmful wage laws and compete to attract business. Instead of increasing the federal rate, national policy makers and thought leaders should focus on ending it. This is a modest proposal that will help restore a rapidly deteriorating respect for states’ rights, allow flexibility for different circumstances, and allow employers to hire more teens and low-skill workers.  

Jared Meyer is a research associate at the Manhattan Institute for Policy Research. You can follow him on Twitter here.