Marketplace: Could the federal minimum wage vary by the regional cost of living?

By Mitchell Hartman
Marketplace, April 29, 2021

President Joe Biden has announced that the minimum wage for hundreds of thousands of federal contract workers will increase from $10.95 an hour to $15 an hour next year. This the president can do by executive order. But raising the federal minimum wage for all American workers requires legislation from Congress, which last raised the minimum wage to $7.25 an hour in 2009. ...

Mike Draper is the owner of Raygun, a Midwest clothing-and-home-goods retail chain with about 80 employees. It has a store and headquarters in Des Moines, Iowa. “We [also] have stores in Cedar Rapids [Iowa], Iowa City, Kansas City, Chicago and Omaha [Nebraska],” said Draper, where the minimum wages set by state and local governments are $7.25, $10.30, $13.50 and $9 per hour, respectively.

“There’s lots of things that vary by state, county, city,” Draper said. “The sales tax rate. Minimum wage is just another thing.”

In the 1930s, Southern lawmakers pushed the idea of varying the minimum wage to cater to lower-wage regions, according to economist Heidi Shierholz at the progressive Economic Policy Institute. And she said the policy had similar drawbacks then to the drawbacks it would have today: “It would lock in existing low-wage conditions in certain regions that are the result of historic racism.” ...

Shierholz, who served as chief economist in the Obama administration’s Labor Department, believes the federal government should set a single nationwide minimum wage of at least $15 an hour. Then state and local governments can set their own minimum wages higher, as warranted by local economic conditions and the cost of living. ...

For his part, Raygun owner Mike Draper said he’d be fine with a substantial, across-the-board increase in the federal minimum wage. He said he already pays his employees above minimum wage in the markets where he operates.

“I would prefer the minimum wage to be higher — and uniform around the country,” Draper said, “just because I think it’s the most efficient way to inject some spending power into the U.S. economy.”

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