Minimum Wage Hike Will Hit Red States Harder Than Blue States


Impact Varies from State to State Because of Cost of Living, Says NCPA

DALLAS (January 10, 2007) - A proposed increase in the federal minimum wage from $5.15 per hour to $7.25 will have vastly different effects on workers and businesses, depending on where people live, according to the National Center for Policy Analysis (NCPA).  The reason: because the cost of living varies so much, $7.25 will buy a lot more in some cities than it will in others.

The researchers also note that "red states" and "blue states" will be affected differently, which may explain the strong support for a higher minimum wage among blue state Democrats.  For example:

  • Most large cities on the east and west coast already have a minimum wage that is close or above the proposal.
  • In Speaker Nancy Pelosi's San Francisco, the minimum wage is $9.14.  And in Rep. Charlie Rangel's New York City, the minimum wage is $7.15.

"The proposed wage hike is a way for business and labor interests in blue states to raise labor costs in the red states with which they compete," said NCPA Distinguished Fellow Robert McTeer.  "What business wouldn't relish the thought of raising the costs of its competitors?"

McTeer says that the higher minimum wage will have a negligible effect on most blue state cities on the coasts.  "Yet in the interior of the country, there will be predictable bad effects: higher unemployment and higher costs of business."

Comparing a $7.25 wage with the cost-of-living in 50 major metropolitan areas (See Full Chart Online Here), the NCPA found that due to differences in the cost of food, housing, gasoline and other goods the purchasing power of the federal minimum can vary widely depending on where a worker lives.

  • $7.25 will buy only 58 percent as much in San Francisco as it will in Milwaukee.
  • By contrast, the same wage will buy 12 percent more in Omaha than in Milwaukee.

"Why should we have one minimum wage that is the same regardless of where people live?" asks McTeer.  "If the goal for all low wage workers to have the same, minimum standard of living, we need different wages for different cities."

NCPA researcher found that to achieve the same living standards, the difference between wages paid in coastal cities and interior cities needs to be even greater than it is today.  For example:

  • In order to meet the same standard of living achieved by a $7.25 wage in Milwaukee, the minimum wage in San Francisco would have to be set at $12.49.
  • Similarly, to meet the same standard of living achieved by a $7.25 wage in Milwaukee, the minimum wage in New York City would have to be set at $14.68.
  • On the other hand, the wage in Omaha would only need to be set at $6.46 to meet the same standard of living as Milwaukee.

"What is Congress trying to do?" asks McTeer.  "If the goal is to punish red state economies, a uniform minimum wage makes sense.  But if the goal is to enact a uniform minimum living standard, we need to start by raising wages on the coastal cities and leave the interior cities alone.  If minimum wage legislation were left to the individual states, the impact would be easier to discern and competition to raise the ante would soon be revealed as a losing strategy."