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A Bottom-Up Solution for America’s Minimum-Wage Mandates: Counties

A one-size-fits-all approach defies local cost-of-living realities. County-based indexing could help avoid losses of jobs and tax revenues, and it could appeal to policymakers on both sides of the rural-urban divide.

People protesting.
Protesters from South Carolina, which has not set a minimum wage, demonstrate outside of McDonald's headquarters in Oak Brook, Ill., calling for a pay hike. (Chuck Berman/Chicago Tribune/MCT)
A centerpiece of the Biden administration's economic proposals is its pitch to double the national minimum wage to $15 an hour. Whether Biden's proposal makes it to a final vote in the pending pandemic relief bill — the president himself doubts it will — or returns later in the year as free-standing legislation, it faces an uphill battle for enactment in the way it's proposed.

Not only is GOP opposition strong, but members of Congress who represent rural areas, including some Democrats, worry about a one-size-fits-all national mandate's impact on their local businesses, existing jobs and tax revenues, not to mention their economic development efforts to add jobs and expand the tax base. And much the same dynamic is in play in state capitols, where proposals to raise state minimums have become perennial agenda items.

There is an approach, though, that could allay some of those fears and perhaps blunt some of the opposition: indexing the minimum wage to the local cost of living.

First, though, it's helpful to understand the national patchwork of minimum-wage laws. The federal minimum was last set at $7.25 an hour in 2009 and has not been adjusted since. A handful of states have no law or set a minimum that is lower than the federal standard, so the federal law prevails there. Most states, however, have already raised their own minimum-wage levels above the federal $7.25, and half of them are scheduled to increase theirs this year regardless of what happens in Congress. Almost half the states are now over $10, and $15 prevails in a limited number of localities, most notably in California. A few states, meanwhile, have a lower wage standard for small employers whose pocketbooks are presumably skinnier.

Based on inflation alone, an increase is overdue. With the national poverty-income level estimated at $26,500 for a family of four, it's hard to argue that a new $15 minimum wage — only 13 percent above the poverty standard — is too high; at $7.25 an hour, the current mandate is below the poverty line for even a one-person household. Advocates say that a rising tide lifts many boats, as other lower-tier wage scales get pushed upward in the labor market: Ask any municipal recreation department, summer youth jobs program or school crossing guard paymaster. And while polling finds that most Americans support an increase, the opposition is deeply rooted in places where wage mandates defy local financial realities.

There are no easy answers to the question of whether minimum-wage hikes kill jobs or boost incomes overall and thus local taxes. At the margin, some jobs will be eliminated where the economics don't work, but it's questionable that this dynamic will significantly impact most state and municipal budgets. One report shows tax revenue losses from lower private-sector employer profits offsetting negligible additional tax receipts from their low-tax-bracket workers, although it's hard to run that model through a public employer's budget and make much sense of it. One study did find, however, that low-income, low-wage counties are most likely to suffer job losses from a mandated increase, which underscores the relevance of living costs in regional and local labor markets.

Indeed, any effort to mandate a higher federal minimum wage should take into account the fact that living costs in rural and small-town America — most notably housing costs — are significantly lower than in more populous cities and metros. According to 24/7 Wall St., a dollar spent in Arkansas or West Virginia is worth $1.15 compared to the 87 cents in goods and services that same dollar will buy in California. Variances at the county level are even wider than the state-to-state averages.

So it's no wonder that rural conservatives, given their first-hand experience with local cost-of-living differentials, have a bone to pick with the national minimum-wage concept. To them, the federal law is just one example of naive government meddling by urban do-gooders who have never walked in the shoes of their country cousins. An aspirational mandatory "living wage" in Chicago is an uninvited "layoff wage" downstate in Carbondale.

Here's a way to bridge this chasm: a sensible mathematical equalizer for this urban-rural economic disparity. The national minimum-wage standard could be adjusted — both up and down — for local cost-of-living differences on a county-by-county basis. The tools for such adjustments are readily available. For years, the U.S. Department of Housing and Urban Development has calculated a fair market rent index for metropolitan statistical areas. The federal government also makes "locality" adjustments to some of its workers' pay for local cost-of-living differentials. Such methodologies can readily be enhanced to use local apartment and house rental rates, along with "bottom tier" house prices, for data points.

Using those tools, the national wage minimum could be adjusted up or down locally, based on each county's index level. Workers in urban, high-income, high-cost counties (like Bergen in New Jersey, Fairfax in Virginia and San Francisco in California) would be eligible for a federal minimum wage several dollars higher than the national standard. Those working in low-income, low-cost rural counties would be subject to a commensurately lower minimum wage, unless their state's local mandate is higher.

Given that housing is just one component of living costs, and to avoid bizarre extreme outcomes, there would need to be upper and lower limits on such adjustments — perhaps establishing a range of plus or minus 25 percent. Congress could also allow the 400 U.S. counties with populations of more than 300,000 to electively divide up their territories if they have major internal demographic disparities: A block of contiguous census tracts, or perhaps an entire incorporated city, could be separated out as its own minimum-wage district.

From there, a multi-year stair-step increase in the national "benchmark" wage standard makes sense. Using the adjustments suggested above, if the national benchmark were raised first to $12, a lower-cost county now living under a $7.25 minimum wage would step up initially to perhaps $9. Counties with living costs at least 25 percent below the national average would then step up to a local minimum wage of $11.25 in a few years — a level that would reportedly pass muster with a closely watched fence-sitting Senate moderate like Democrat Joe Manchin of West Virginia. Conversely, the hourly minimum in a high-cost county would rise eventually to $18.75. To simplify updates, these countywide adjustment factors could be recalibrated every five or 10 years.

Regional economies are a public-policy milieu where one size doesn't fit all. States would still be free to establish their own mandates at higher levels than the federal base, and they too could adopt county-level indexing where sensible. Longer-term, congressional progressives seeking to achieve a higher living-wage benchmark will find better odds of bipartisan support using these cost-of-living adjustments.

This approach displays sensitivity to longstanding economic differences between lawmakers' rural and urban constituencies. Equal opportunities need not compel identical interventions, as long as they are commensurate, just as civic unity requires respect for inherent differences across this vast nation.

Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.

Girard Miller is the finance columnist for Governing. He can be reached at
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