In the eight years since the last federal minimum wage increase, liberals and conservatives have shouted at each other from across the aisle, or across the dinner table, over whether the current rate of pay is appropriate.
The arguments from both sides are generally faulty and neither are discussing the minimum wage from a policy perspective.
Behind all the buzzwords that make campaign commercials sexier and the simple solutions that are easy to grasp, there’s a boring, complicated, mathematical approach to calculating an effective minimum wage.
According to The New York Times, throughout the 1960s and 1970s, the minimum wage was around 48 percent of the nation’s median income.
The average minimum-to-median ratio in countries that are members of the Organisation for Economic Co-operation and Development is also about 50 percent.
Today, using the median income of full-time wage and salary workers, that ratio in the United States is around 34 percent, according to the Bureau of Labor Statistics, down from 36 percent in 2015 when the U.S. placed last in that category among its OECD counterparts.
Were the minimum wage still at 50 percent, the federal rate would be $10.79-an-hour.
Not so coincidentally, the buying power of 1978’s $2.65 minimum wage would be $10.39 in today’s dollars.
So the federal minimum wage should be higher, but both of those figures are a far cry from the left’s $12-$15 proposal.
And I’m not even suggesting that the minimum wage should be raised to anywhere between $10.39 and $10.79.
On the contrary, because the federal minimum wage would apply to all states, it should be set with consideration for the income of the poorest state.
Mississippi, which has a median income of a mere $30,000 according to the BLS, and the lowest cost of living among all 50 states, according to the Bureau of Economic Analysis, would have a minimum wage of $7.11 if the 50 percent ratio was used in that state.
However, Mississippi is among a group of five states that have the highest number of minimum wage workers and also has the nation’s highest poverty rate at 22.6 percent, according to CNN.
So the $7.25 minimum wage isn’t appropriate here either, but it may not be economically sound to raise it to over $10 in that state.
Instead, policymakers at every level should be taking the initiative to set their own minimum wages.
States with higher median incomes and higher costs of living should set their minimums accordingly.
They should do so with respect for the 50 percent minimum-to-median ratio and the regional price parities of their city or state.
RPPs measure the cost of living in a given place as a comparison to the national standard.
For instance, according to the Bureau of Economic Analysis, the RPP for San Francisco is 121.9 percent of the national level, while the RPP for the state of California is 113.4, which means the city of San Francisco should have a slightly higher minimum wage than the state level.
This way, the minimum wage would be set to somewhere between $12 and $15 for the cities that truly need it and where it would be economically reasonable, but it would avoid making it a federal mandate for places where such a level could be economically devastating.
But as our nation’s partisanship widens and we focus less and less on actual policy issues, this may be a daunting, if not impossible task.
thshowal@indiana.edu
@TherinShowalter
