Gridlock Is Good (for the Minimum Wage)

If Congress won't act, the people will.

The impasse in Washington over President Barack Obama's push to raise the minimum wage has been good for America. The jump from the current $7.25 federal floor to his proposed $10.10 would be too high, too fast, in too many parts of the country.

It's more appropriate for states and cities to decide the matter for themselves. This has allowed increases to happen where they are most suited to local labor markets and economic conditions, without hurting places that don't want or need them.

More than 60 percent of Americans now live in states with minimum wages higher than $7.25. This year alone, 10 states and Washington, D.C., have raised theirs. On Election Day, voters in Alaska, Nebraska and South Dakota will decide whether to join them. This momentum will continue, with the likes of Vice President Joe Biden stumping for the change this week in Los Angeles. More Republican politicians are supporting modest increases, too.

It's true that raising the minimum wage produces some negative drag on job growth -- how much is the crux of debate -- and modestly pushes up prices. The far more effective way to help low-wage workers is to expand the earned income tax credit, a wage subsidy designed to reward work. Yet Congress has failed to do this.

For now, policies to help low-wage workers will be measured in the states. The 27 states that have raised their minimum wages tend to have higher median incomes and a higher cost of living than those that have held theirs to $7.25. Of the 10 with the highest median income for single-family households, nine have raised their minimum wages. Of the 10 states with the lowest median incomes, only one -- New Mexico -- has raised its minimum wage.

Of course, residents of high-income states and their businesses are better positioned to absorb price increases. And low-income states tend to have lower costs of living, mitigating the need for a higher minimum wage. In Hawaii, for instance, where a $10.10 hourly wage is being phased in, the cost of living is 70 percent higher than it is in North Dakota, where the minimum wage is still $7.25.

An increasing number of cities are also raising their wage floors. In January, San Jose, California, adopted the highest minimum in the country ($10.15), but it may not hold the title for long. Next month, voters in Oakland and San Francisco will decide whether to raise theirs to $12.25, with San Francisco's rising to $15 in 2018.

Unfortunately, some cities are taking a more arbitrary approach, applying higher minimum wages exclusively to government contractors and targeting particular industries. Los Angeles has just adopted a $15.37 minimum wage for only one industry, hotels, and then only those of a certain size. Seattle approved an increase that will reach $15 an hour by 2017, but only for larger companies that don't offer health insurance. The higher wage won't apply to smaller companies until 2021. Government should not set different wage mandates for different companies and industries, nor should it try to divine what the labor market will look like seven years from now.

Nevertheless, all the minimum wage action in cities and states strengthens the case for Congress to expand the earned income tax credit. With real pay stagnating, wage subsidies can help more people -- without hurting job growth -- than wage mandates.

-- Editors: Francis Barry, Katy Roberts.

To contact the editor on this story:
David Shipley at davidshipley@bloomberg.net