NCPA - National Center for Policy Analysis


July 25, 2008

Consumer prices, especially for gasoline, are rising faster than workers' wages, but because of differences in cost of living, raising the minimum wage would have a vastly different impact from city to city, according to the National Center for Policy Analysis (NCPA).  Although the new federal minimum wage rose to $6.55 an hour today, some 31 states have minimum wages that are above the mandated federal wage.  But when adjusted for area cost of living, how do these wages fare?

The NCPA analysis of 50 metropolitan areas concluded that federal, state and city minimum wages result in differences in purchasing power.  For example:

  • Michigan's minimum wage is $7.40, but when adjusted for cost of living, it buys $7.53 worth of goods and services.
  • On the other hand, New York's minimum wage of $7.15 buys only $3.28 worth of goods and services in the New York City area!
  • San Francisco's minimum wage of $9.36 an hour is the highest in the nation, and higher than California's state minimum wage of $8.00 an hour; yet, when adjusted for the city's cost of living, it buys only $5.43 worth of goods and services.

"Since cost of living varies widely across the country, it does not make much sense for the federal government to mandate a minimum wage that is arbitrary and ineffective at lifting people out of poverty," says NCPA Senior Policy Analyst Pam Villarreal.

Even state-mandated minimum wages are problematic if they increase the cost of doing business and result in job losses for lower-skilled workers.

"The key to lifting people out of poverty is to provide other solutions that do not distort the labor market, such as expanding tax credits for the working poor," says Villarreal.

Source: News Release, "Minimum Wage Not What It Seems When Compared to Cost of Living," National Center for Policy Analysis, July 24, 2008.


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