This means the effects of raising the federal minimum wage will be more pronounced in low-cost states compared to those of high-cost states.
Even State Averages Obscure Local Differences
But even at the state level, large differences exist between different local regions. For most states, living in metropolitan or big cities is more expensive compared to living in rural areas. So, when we talk about averages, state “living wage” figures tend to skew these differences in local living costs.
So, while a state like Minnesota requires a $12 per hour living wage, that number fluctuates depending on the specific area you choose to look at.
According to data from the Bureau of Economic Analysis, for example, Minnesota, Hennepin County in 2019 had the state’s highest per-capita personal income at $76,552. This is more than twice as much as the county with the lowest per capita personal income. These regions should certainly not be subjected to the same minimum wage level.
Neither should New York City and the rest of New York State.
In 2019, New York City had an average income per person of $197,847. Yet New York State’s average per capita personal income is about $72,000. Additionally, the state has about 39 counties with income below $50,000 and just 23 with incomes above $50,000.
One-Size-Fits-All Policies Do Not Work
If there is one fact that economics can teach us, it’s that “one size fits all” policies do not work. Why? Such policies assume all human beings have on average the same preferences, same opportunity costs, similar level of skill, and the same dedication to achieving their goals.
However, even minimum wage workers are very diverse.
The minimum wage workforce is made up of young teenagers that want to do part-time work to gain experience; entry workers that happen to be on their way to climbing up the economic ladder; workers that for various reasons prefer to work part-time; low skilled individuals who are, for lack of a better word, unluckily stuck in low-paying, less-productive sectors of the economy.
For some reason, this last group is the one always used as a base for what should be done. But data from the Bureau of Labor statistics show that the minimum wage workforce is made up mostly of young, less educated part-time workers who are less likely to be married or have a family. Furthermore, the population of workers earning the minimum wage is very small compared to the total workforce and has been shrinking.
These are groups of people that cannot be lumped together—and what helps one group does not especially help the other.
Older low-skilled workers, for example, could potentially benefit more from training initiatives that help to close the skills gap so they can be paired up with better-paying jobs. They can, furthermore, be helped by loosening laws that restrict entry into lucrative occupations. Young workers, on the other hand, could be helped if the minimum wage was lowered or abolished, and so would small businesses.
There are countless fundamental differences within our economy that a one-size-fits-all federal minimum wage can never take into account.