While Congress sits on its hands.
On January 1, 2017, minimum wages will increase in some states and cities around the country. In California, the state minimum wage will rise from $10 to $10.50 for employers with 26 or more employees, on its way to $15 by 2022. Smaller employers pay $0.50 less at each step along the way until 2023 when they’ll catch up. From 2024 on, the minimum wage will be indexed to inflation.
Within California, a number of cities have their own, and higher, minimum wages. Here are a few cities in the Bay Area:
- In Emeryville, just across the Bay Bridge from San Francisco, the minimum wage was increased on July 1, 2016, to $14.82 for companies with 56+ employees and to $13.00 for smaller companies.
- In San Francisco, one of the most expensive cities in the US, minimum wage will increase on July 1, 2017, from $13 to $14. On July 1, 2018, it will increase to $15, after which it will be indexed to inflation.
- In Oakland, minimum wage will rise on January 1, 2017, from $12.55 to $12.86 due to a CPI adjustment.
- In Palo Alto, the hyper-expensive center of Silicon Valley, minimum wage will increase on January 1, 2017, from $11 to $12.
- In San Jose, minimum wage will increase on January 1, 2017, from $10.30 to $10.50.
Across the US, according to my count, 28 states have a minimum wage that is higher than the federal minimum wage, and within these states, some cities have higher minimum wages still. Of these states, 19 will raise their minimum wages in 2017. And a number of cities will raise theirs.
At the same time, the Federal minimum wage, at $7.25, has remained unchanged since July 2009, despite seven years of consumer price inflation, including rampant rent and healthcare inflation. For many big urban areas in the country, it was a ludicrously small amount back in 2009, and it’s even more ludicrous today.
Because we don’t like to see working people starve to death in the street, low wage earners are subsidized by the government at various levels via food stamps, subsidized housing, subsidized health care, all kinds of tax credits, and the like. These subsidies in effect transfer payroll expenses from the employer to the taxpayer. It is in fact a corporate subsidy, whereby state and federal taxpayers pay corporations for part of their labor expenses, so that corporations can benefit from cheap labor and pay their executives mega-bonuses for keeping their labor costs down. That’s how cheap labor works.
In addition, the Fed sees to it that the purchasing power of wages gets whittled away via inflation over time. Companies can show higher sales and profits, based solely on price increases. Households get a feel-good illusion [OK, I get it: Companies Clamor for Cheap Labor, Fed Delivers].
Then there’s this: People earning low wages make terrible consumers, in an economy that depends on consumer spending. So low wages are pernicious in many ways.
Yet, a federal minimum wage doesn’t work very well. At $7.25, it might have allowed a single person in a small town in Oklahoma with a low cost of living to live off it without taxpayer subsidies. But even back in 2009, this was an impossibility in more expensive urban areas.
So states and cities have stepped into the vacuum and designed their own minimum wage standards, adapted for their own economies and costs of living. And that’s how it should be.
Cities know how high their costs of living are and what the minimum wage should be that would allow a person to squeak by without taxpayer subsidies. So if you’re currently earning the minimum wage in San Francisco of $13, and you’re working 40 hours a week, you’ll be making about $2,250 a month before taxes, in a city where the median one-bedroom apartment rents for $3,300 a month. So this minimum wage means shacking up with other people or living in a dump, or both.
It also means that San Francisco’s higher wages are attracting workers with longer commutes. Conversely, some companies insisting on hiring only cheap labor might choose to leave San Francisco. Most of these companies left long ago. This type of corporate mobility would perk up the economy of low-cost jurisdictions they move to; and that would be a good thing.
Restaurants, retailers, and others that sell to local customers and tourists will need to be where the money is, and the money is in San Francisco. So they’ll adjust. A high-enough minimum wage creates a level playing field among competitors.
A minimum wage needs to allow the worker to exist; it needs to be large enough to get the taxpayer off the hook for subsidizing corporate labor costs; and it needs to allow companies to thrive. This is not an easy balance to find. A minimum wage at the federal level that’s barely high enough for San Francisco would be a massive job killer in jurisdictions with low costs of living.
So ideally, minimum wage levels should be set by cities, counties, and states – now happening across the country. This will cause some shifts, but it will balance out. And it’s great for consumer spending, and for local businesses that receive it. If a jurisdiction goes overboard, and the economies don’t work out, it will have to deal with the consequences and adjust. Minimum wage is always an uneasy compromise.
That compromise can be found more easily at the local level. At the national level, trying to find a compromise that works in San Francisco, CA, and also in Ada, OK, is an exercise in absurdity.
So a federal minimum wage should reflect something that works in low-cost jurisdictions. Local and state minimum wages should reflect what works in their higher-cost jurisdictions. But in all cases, the minimum wage should be high enough to get the taxpayers off the hook and make companies pay for all of their costs of labor.
When Trump campaigned on how “terrible” the jobs situation was, while the Obama Administration touted the jobs growth since the Great Recession, it sounded like they were talking about two entirely different economies. But they were both right. Read… New Census Data Shows Why the Job Market is Still “Terrible” (as Trump said), but the Numbers Get Hushed up