Establishing an identical minimum wage for EVERYWHERE in the United States will:
- shortchange workers in many urban areas where the costs of living are high; and
- it will unduly handicap local firms in their efforts to stay in business where local economies are depressed.
Instead, we should “index” the local minimum wage to the LOCAL COST OF LIVING.
This is easily done since the Department of Labor and numerous websites (e.g. BestPlaces.net) keep track of the local “Cost Of Living” for every city, town, and village in the United States.
Each of these locations has a “Cost of Living Index” (COLI) that tells us how its Cost Of Living compares percentage-wise to the national average, which is currently at $61,224.
To learn the Cost Of Living in a town, multiply its COLI times $61,224 (or whatever is the current national average).
Recent discussions of a national minimum hourly wage have considered an hourly wage of $15, which is equal to 0.0245% of $61,224, the current U.S. average annual Cost Of Living.
This Google Sheet lists the COLI for disparate locations in each state and uses a suggested algorithm to recommend a minimum wage for each location: Cost Of Living Index
The second row contains:
- the current U.S. average Cost Of Living of $61,224
- the “Wage Factor” of 0.0245%
- The “Hourly Wage Base” which is the product of the above two values, currently $15.00. The Hourly Wage Base will, of course, change as the U.S. Cost Of Living changes.
The column of “Raw Minimum Wage” is simply the Hourly Wage Base multiplied by the COLI for that locality.
However, this formula creates an unreasonably high Minimum Hourly Wage for locations with a high COLI . For example, it gives a Minimum Hourly Wage of $40.39 for San Francisco, California. Therefore a second column, “Local Minimum Hourly Wage” is calculated for COLI’s greater than 100 using an index that is ⅓ of the way between 100 percent and the local COLI. With this tweak, the Minimum Hourly Wage for San Francisco becomes $23.46, a far more reasonable amount.
I am proposing a federal law mandating the Minimum Hourly Wage in each location be individually set to:
- 0.000245 multiplied by the local Cost Of Living when the local COLI is 100 or less; and
- 0.000245 multiplied by the U.S. average Cost Of Living and multiplied by 1/300ths the sum of the local COLI and 200 when the COLI is greater than 100. E.g., 0.000245 x $61,224 x (COLI + 200) /300
[With a little algebra, the above calculation for setting a Minimum Hourly Wage for COLI’s greater than 100 can be shown to be identical to using an index that is ⅓ of the way between 100 percent and the local COLI.]
But what about “tipped employees”? The following passage is a recommendation for managing wages for tipped employees and is merely the current law with minor changes in italic bold:
A tipped employee engages in an occupation in which he or she customarily and regularly receives more than $30 4 times the local Minimum Hourly Wage per month in tips. An employer of a tipped employee is only required to pay $2.13 per hour 30% of the local Minimum Hourly Wage in direct wages if that amount combined with the tips received at least equals the local federal minimum wage. If the employee’s tips combined with the employer’s direct wages of at least $2.13 per hour 30% of the local Minimum Hourly Wage do not equal the local federal minimum hourly wage, the employer must make up the difference.
Indexing the Minimum Hourly Wage to the local Cost of Living, and adjusting the regulations regarding “tipped employees” has the potential of pleasing economists on both sides of the aisle:
- It is truly sensitive to local economies.
- It will encourage investment in economically depressed areas.
- It will not unduly strain businesses, regardless of size, to meet their profit goals.
- It validates that our country is a diverse republic.
- It establishes a reasonable wage floor to support non-specialty workers at every location in our country.
- The Minimum Hourly Wage will automatically adjust to changes in local economies and to changes in the national economy.
- Frequent legislation to adjust the Minimum Hourly Wage will no longer be necessary.