National Minimum Wage Hurts Low-Cost Areas

April 1, 2014

A one-size-fits-all minimum wage will disproportionately hurt low-skilled workers in low-cost areas, say Andrew Biggs and Mark Perry, resident scholars at the American Enterprise Institute.

A national minimum wage is just that -- a national wage floor that all employers, regardless of location, must pay workers. This means that the wage applies no matter the variations in living costs across the country. The impact in some areas could be disastrous.

  • In Pueblo, Colorado, costs across the board fall below the national average. Housing costs are 30 percent lower than in the average metropolitan area. Health care costs are 14 percent lower than average, food costs 12 percent lower and the overall cost of living 17 percent lower than the national average. Were the $10.10 minimum wage adjusted for the cost of living in Pueblo, it should only be $8.25 per hour.
  • By contrast, the cost of living in Manhattan is 2.5 times higher than the cost of living in a place like Birmingham, Alabama.
  • To suit the cost of living, the proposed minimum wage should be $8.63 in Memphis, $8.97 in San Antonio and $16.32 in San Francisco.

Workers in low-cost areas are the ones who suffer.

  • Those in high-cost areas will not be as affected by the wage increase.
  • In low-cost areas, however, an employer cannot raise his prices to compensate for a 40 percent increase in the minimum wage up to the proposed $10.10 per hour.
  • Instead, he will have to find ways to cut labor costs -- whether eliminating positions, reducing hours, or substituting machines for actual workers.

A universally-applied minimum wage will have disproportionate effects depending upon location. Lawmakers need to consider the impact of a one-size-fits-all policy before raising the minimum wage to $10.10 per hour.

Source: Andrew Biggs and Mark J. Perry, "A National Minimum Wage Is a Bad Fit for Low-Cost Communities," The American, March 26, 2014.

 

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