The Third Way policy institute deigns to tell us that we can make the minimum wage less damaging – something which is most certainly true. We should and could do this by having regional minimum wages, tied to the costs of living in various places. This would indeed be less bad than one federal minimum wage, but it’s also selling the pass on the very idea itself. For if we agree, which I most certainly do, that wages should vary, that there should be no rigid national minimum, then there’s no argument in favor of the federal minimum wage at all, is there? We’ve all just agreed that there shouldn’t be one, so let’s not have one.
The institute has a New York Times op-ed about their report. They note, entirely correctly, that the cost of living varies around the country. It costs $120 (roughly) in Hawaii to get the standard of living that $80 buys you in Beckley, W.V. The calculations for this are done by the Bureau of Economic Analysis and are called “Regional price parities.” It’s the same idea and the same method used internationally to measure purchasing power parities between countries.
So, if it’s cheaper to live somewhere, then why shouldn’t the minimum wage be lower? Or, alternatively, shouldn’t that minimum be higher where it’s more expensive?
The answer is “no,” on two entirely different grounds. The first is a technical point – what is it that we actually worry about if the minimum wage is too high? Third Way acknowledges this point, then rather whiffs it – we worry that imposing big city wage costs on poorer areas will increase unemployment in those poorer areas. The problem here is that costs and unemployment, those regional price parities and the rate of people out of work, don’t map over each other.
We can see this by looking at unemployment by metropolitan area and then comparing it with those regional prices. El Centro, Calif., has near 23 percent unemployment. But it’s not cheap to live in, being right on the national average. Thus it won’t get the lower minimum wage for cheap places – we’d be imposing a relatively high minimum on a place with the country’s highest unemployment rate (as measured by metropolitan area). The second-worst unemployment rate is Yuma Ariz., also an average cost place. Third on the list is Visalia, Calif., a little above average cost. Fourth, Beaumont – Port Arthur, Texas is about average again. Bakersfield, Calif., would be allocated the second-highest level of minimum wage despite having the country’s fifth-worst unemployment rate.
That’s all a significant technical problem with the idea. That the thing we’re worried about, unemployment, does not in fact map over living costs by area. Thus we cannot solve our worries about high minimum-wage-caused unemployment by determining what that wage should be by looking at living costs.
The second problem with the argument is that, well, we’ve just sold the pass entirely, haven’t we, about the very idea of a minimum wage itself? The left’s argument is that there’s some minimum wage which one should gain for their labor, some amount which can and should be scientifically determined. But now Third Way has just said that there isn’t such a number, it varies.
That’s just what all the anti-minimum wage enthusiasts such as myself have been saying all these decades. There is no one number which determines what it is right, morally just, nor even fair to pay someone for their time. It will always depend.
We have already both agreed that one national number doesn’t work. All I’m doing is saying that the only correct number is whatever employer and employee agree upon (on the assumption that both are consenting adults) and there’s an end to it.
Once we agree that a national minimum wage isn’t appropriate, then we’ve just killed off the argument about having a minimum wage at all. Because the answer really is, always, it depends.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute.
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