What is the minimum wage in the United States? To a much greater extent than used to be the case, the correct answer is: “It depends.”
Under federal law, the hourly minimum is $7.25, the same as in 2009, the last time Congress increased it. This is the lowest since the 1950s, in inflation-adjusted terms.
Yet in the decade since 2009 — especially in the second half of that decade — many state and local governments have enacted minimum wages higher, often much higher, than $7.25. Fully 89% of the 6.8 million minimum-wage employees now face a legal minimum above $7.25 per hour, the New York Times reports, but the precise figure varies by state and city, ranging all the way up to $16.09 in SeaTac, Washington.
How about the U.S. tax on a gallon of gasoline? Once again, it’s an increasingly state-by-state situation. The federal excise tax of 18.4 cents has been fixed, i.e., declining in real terms, since 1993. In the interim, many states have been adjusting theirs, such that there is now a wide range between the top rate (58.7 cents in Pennsylvania) and the bottom (14.7 cents in Alaska).
For those of us accustomed to thinking of the U.S. as a unified economy, best regulated as uniformly as possible from sea to shining sea, these facts discomfit.
We should get over it. At least I have. It would be unwise to have, say, 50 different auto-safety standards. Yet in certain situations, a regulatory patchwork can have its advantages. And so it is with the prices of entry-level labor and motor fuel, essential as they may be to the functioning of the economy.
Take state gas taxes first. To the extent that receipts pay for roads and other transportation systems, as they do in most states, it’s better to impose the tax at the state (and local) level; the people who pay for the infrastructure are the ones who actually use it.
One reason (among many) that Congress has struggled to pass a higher federal gas tax was a perennial dispute involving the Highway Trust Fund financed by the tax: Some states feel their motorists pay more in gas taxes than the states ultimately get back in road money. When they levy the tax themselves, that problem vanishes.
As for the minimum wage, Economics 101 teaches that it is a second-best solution to income inequality, because it risks pricing intended beneficiaries — low-skill workers — out of the job market.
Politics 101, however, teaches that the minimum wage is here to stay; and recent economic research suggests that the job-destruction risks may be mitigated as long as the minimum does not exceed 50% or so of the median hourly wage, which, in turn, varies from jurisdiction to jurisdiction.
For many states and cities that have enacted higher minimums, often with a target of $15 per hour in the near future, those higher minimums are within range of the 50% benchmark. In Los Angeles, for example, the $14.25 minimum set to take effect July 1 is approximately 53% of the median for the Los Angeles-Long Beach-Glendale area, according to the Bureau of Labor Statistics.
The same is true for many places that have kept minimum wages on a lower trajectory. In Florida, for example, the $8.46 minimum is $1.21 above the federal level, according to government data, and about half of the median hourly wage for all workers in the state.
These differentials are in keeping with a proposal by Rep. Terri Sewell, D-Ala., to change the one-size-fits-all federal minimum wage to a system of regional minimums, based on local labor-market conditions.
Differing state and local minimum wages also subject economic theory to real-world experimentation. Supreme Court Justice Louis D. Brandeis would have been pleased. “It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory,” Brandeis wrote in 1932, “and try novel social and economic experiments without risk to the rest of the country.”
To be sure, Brandeis wrote this upbeat opinion in defense of a protectionist Oklahoma statute that imposed — absurdly, in hindsight — onerous licensing requirements on would-be entrants to the ice-manufacturing business.
It’s also true that states and cities today have established new, higher minimum wages more in response to hot political pressure than to cool economic analysis. In New York state, for example, the effective minimum (blending different local rates that the state and New York City have set) stands at $13.73, a risky 62% of the overall median.
Still: Happy the state, or city, that has guessed right, more or less; and happier the nation that does not have to suffer along with those who guess wrong.