Management & Labor

Where the Minimum Wage Has the Least Buying Power

While minimum-wage workers feel the pinch everywhere, it’s far more difficult to make a living in the nation’s most expensive urban centers. View data and read an analysis for more than 300 cities.
by | March 27, 2014
A rally to raise the minimum wage in New York City.
A rally to raise the minimum wage in New York City. FlickrCC/The All-Nite Images
 

For long, minimum wage legislation has largely been confined to state capitals and Washington.

What’s often lost in the debate is that the largest discrepancies in the actual buying power of minimum wages are found at the local level. So, while minimum-wage workers feel the pinch everywhere, it’s far more difficult to make a living in the nation’s most expensive urban centers.

Only a handful of cities set a wage floor for all workers. But as the debate ramps up, the issue could increasingly be decided at the local level, especially if President Barack Obama’s push to raise the federal minimum wage fails to gain traction.

Officials could particularly begin to feel pressure in cities where minimum wages most trail steadily climbing living costs.

Governing calculated adjusted minimum wages by comparing the highest federal, state or local minimum wages with the Council for Community and Economic Research’s Cost of Living Index for more than 300 cities, shown below. In 14 larger jurisdictions reviewed, the adjusted minimum wage amounts to less than $6 per hour relative to other cities. Elsewhere, in a few cities with higher minimum wage requirements and lower costs of living, the buying power is closer to $9 or $10.

Perhaps nowhere is the issue more pressing than New York City, where Mayor Bill de Blasio continues to lobby the state legislature and Gov. Andrew Cuomo for authority to raise the city’s wage, set to increase from $8 to $8.75 an hour at the end of the year. In fact, Manhattan’s current minimum wage is less than $4 when adjusted for cost of living, the lowest of any area reviewed.

Price-level data indicates low-income workers face similarly steep hurdles in other high-cost cities. Not too far behind New York City are Honolulu and Hilo, Hawaii, where the minimum wage remains frozen at the federal rate of $7.25 an hour.

For low-wage workers in expensive cities, housing costs are often of greatest concern. Jim Martin, director of the nonprofit Association of Community Employment Programs for the Homeless (ACE) in New York, said affordable housing is so scarce that many clients end up living in shelters after obtaining full-time jobs. And even if employers offer health coverage, some can’t afford the paycheck deduction. “They’re so at risk of getting back on that carousel of homelessness because of their wage,” Martin said.

As is typical of workers on the lower rungs of the economic ladder, those completing ACE’s employment training program mostly land jobs in the service industry. Former ACE clients obtaining jobs in 2012 reported average starting wages of $8.81 per hour. Nationwide, 4.3 percent of hourly workers were paid at or below the $7.25 per hour federal minimum last year, and nearly 18 percent earned less than $9 per hour, according to Labor Department estimates.

On the opposite end of the spectrum are cities in parts of the Midwest and Pacific Northwest, particularly Washington state. While that doesn’t mean quite as much in the Seattle area—where the cost of living is higher—the buying power of the minimum wage in cities like Spokane and Vancouver is roughly double that of New York City.

Coupled with the varying costs of goods and services is the fact that about half of states mandate wages above the federal minimum for most employers. At $9.32 per hour, Washington’s state minimum wage is also the nation’s highest. Thirteen states raised wage requirements at the beginning of the year, either by inflation adjustments or ballot initiatives.

In his State of the Union address, President Obama called on states and localities to forget waiting for Congress and raise minimum wages on their own, and some appear poised to do so.

Richmond, Calif., city councilmembers voted last week to increase the city’s wage to $12.30 an hour by 2017. In Portland, Maine, Mayor Michael Brennan is holding a series of public meetings to gauge support for a citywide minimum wage. Similar campaigns are underway in Los Angeles, San Diego and Oakland.

Last year, Washington, D.C., and two neighboring counties in Maryland all passed local minimum wage hikes of their own.

Sylvia Allegretto, an economist at the University of California, Berkeley, said she expects to see more movement on proposals to raise the minimum wage at both the state and local levels. “They’re aware that service industry workers can’t really live and thrive in these high cost-of-living areas,” she said.

Here’s how the political fight typically plays out: Union-backed groups push local officials to raise the minimum wage, or lead campaigns to put the issue directly to voters. They’re then typically met with opposition from the restaurant industry and local chambers of commerce. When local activists wage campaigns to boost pay or benefits requirements, chambers of commerce frequently respond by lobbying state lawmakers to block localities’ from passing ordinances. Several mostly red states maintain laws barring local governments from establishing minimum wages, while the legality of local adoption is unclear in others.

Such a scenario played out last year in Orange County, Fla., where organizers pushed through a requirement for employers to provide mandatory sick leave. State lawmakers responded by broadening Florida’s existing law that prevented localities from setting wage requirements to include benefits as well.

The Florida League of Cities opposed the measure, arguing the state shouldn’t make policy calls for localities. Kraig Conn, a lobbyist for the association, said few local governments in the state have taken up raising the minimum wage. “With the state preemption in place, the conversation is pretty short lived,” he said.

Allegretto points out that the issue generally enjoys a high passage rate when it’s put to voters.

Industry groups contend that companies spanning multiple jurisdictions incur administrative costs when wage and benefit requirements vary. “It creates inequalities and inconsistencies within a company that can be very difficult to address,” said Samantha Padgett, general counsel for the Florida Retail Federation.

The Mississippi Legislature passed its own local preemption bill last year, stating the net effect of locally mandated wages would be “economically unstable” and result in a “decrease in the standard of living” for citizens. More recently, a Republican state senator introduced a local preemption bill in the Oklahoma legislature after a labor union filed a petition to raise the minimum wage in Oklahoma City.

Legal barriers help explain why local minimum-wage laws are rare— just eight cities and counties had ordinances in place earlier this year.

As a result of state actions, some localities enact more limited “living wage” laws, setting a floor for wages of only government employees and private employers with city contracts. Baltimore passed the first such law in 1994, and about 130 other municipalities have since followed suit, according to the National Employment Law Project. Last week, Milwaukee (Wisc.) County Board members approved a minimum wage of $11.33 per hour for employment tied to service contracts and developments receiving county subsidies.

As Congress appears unlikely to push up the federal minimum wage anytime soon, organizers may opt to direct more of their lobbying efforts at local officials.

"Local leaders feel the pressure coming from the ground in a much more direct way than state and federal officials,” said Jennifer Epps-Addison, executive director of Wisconsin Jobs Now, a group that backed the Milwaukee County measure.

Local Area Minimum Wages Map

Dark green areas shown below represent localities with the highest minimum wage requirements when adjusted for cost of living. (Click to open interactive map in new window)

Compare Cities' Cost-of-Living Adjusted Minimum Wages

Cost-of-living adjusted minimum wages for 308 localities with available cost index data are listed below. Adjusted minimum wages shown are relative to other cities:

Source: Governing calculations of cities' highest minimum wages and Council for Community and Economic Research's Cost of Living Index, 2013 annual average composite score.

How adjusted minimum wages were calculated

Governing computed adjusted minimum wages by comparing the highest federal, state or local minimum wages with the Council for Community and Economic Research’s Cost of Living Index for cities. This index, one of the only sources of local-level cost-of-living data, considers housing, food, utilities, transportation, health care, and goods and services costs.

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