Wage Rate Regulation at Different Scales

Readers know I like a good graphic and I love state by state comparisons. Here’s a nifty little state by state comparison of wage rate regulation in the U.S.:

Minimum Wage Legislation by state

Of course, the federal minimum has been set at $7.25 since 2009, and the Obama Administration is contemplating an increase to $10.10. Moreover, cities can get in on the action as well. Danielle and I commented on Seattle’s wage experiment here and here. On that latter score, I stumbled across some friendly-fire skepticism on the wisdom not of raising the minimum but of a city raising it much higher than its surrounding community. Former Labor Department and current Brookings Institution economist Gary Burtless asks us to

Consider a business that mainly sells low-cost, fast-food meals. If it must pay $15 an hour to its low-wage employees, while its competitors less than a mile away are only required to pay $10 an hour, the companies outside Seattle can charge lower prices to their customers for shakes, burgers, and fries, and yet still make a profit. The lower cost establishments can capture a larger percentage of the local fast-food trade, reducing fast-food sales inside Seattle’s city limits. The same is true of the goods and services sold by laundry and dry cleaning establishments, inexpensive motels, and other businesses that depend on low-wage workers to stay competitive. The labor cost disadvantage caused by a higher minimum wage can hurt low-wage employment in Seattle and possibly reduce the value of some of the city’s commercial real estate.

To the extent that consumers have the option of buying goods or services from companies that are not required to pay a higher minimum wage, some of the hoped-for gains from a higher minimum wage will be lost. When customers can conveniently buy products or services from firms that face lower labor costs, the new businesses that they patronize will grow and the old, high-cost businesses they abandon will shrink. Low-wage workers may earn higher wages inside the Seattle city limits, but their employment opportunities in Seattle may shrink.

Read Burtless piece in its entirety here.

A.K.

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