How the Minimum Wage must be changed

If we must have a minimum wage, it certainly needs some tweaking

The present federal minimum wage is a one-size-fits-all law that is extremely unfair to both prosperous locales and poor ones. In prosperous areas, there is no chance that anyone will work for the current minimum wage so it is practically useless. In lower income areas it costs jobs that some people might like to have. A single person in an area where it costs $1,200 a month for bare essentials would need at least, $8.00 per hour to survive. A young person living with parents in rural Wyoming might be able to get by at the same comfort level for $350 a month or $2.20 per hour and get by famously for $5.00 per hour. Yet those jobs below $5.75 per hour do not exist. They have either been replaced by automation or shipped overseas because of government edict. That young man living at home must head for a big city where there are jobs available at and above the minimum wage and he won’t be able to live nearly as well as he could have out in the country for much less money.

This prevents many industries from expanding into depressed areas where they are needed most. It also prevents industries from being successful in areas where high local wages combined with high living costs, make investment unprofitable. This economic pressure steals workers from low cost areas further depressing their economies. An example of what this standard national minimum wage does to many rural areas occurred shortly after the last increase in the minimum wage. I have been unable to find the source of the information so the example will be representative of what actually happened.

The ABC company manufactured widgets at their plant in a small Kansas town about seventy miles from Kansas City. They employed about three thousand assemblers, mostly women who hand assembled the widgets from parts manufactured elsewhere and shipped to the plant. These assemblers were housewives, teenagers and people who otherwise would not have a job for various reasons. Many worked part time. They came mostly from three small nearby towns and the surrounding rural area. They were all paid the minimum wage, five dollars an hour. At this pay rate the widgets cost $2.50 each out the door. Because the cost of living in the area was quite low, five dollars an hour provided a living for some and augmented pay earned by other members of the household or family. The employees were happy to have their jobs and there was always a waiting list of job applicants.

When the national minimum wage was raised to $5.75 per hour, the factory owners were faced with a troubling decision. This change immediately raised their cost for a widget to $2.88, eight cents more than their previous selling price. They had a competitor in Chicago who used an automated system to make the exact same widgets for $2.75 each and were selling them for $3.10. Their costs were not affected by the increase in the minimum wage. After they were denied an exception asked for in a letter signed by almost all of the employees, the owners realized that even if they raised their price to $3.10 and could maintain their customer base there would not be enough gross profit to cover their expenses and they would lose money. There was no way they could raise their price to $3.26, the price needed to maintain profitable operation of the plant.

The closing of the plant cost 3000 people their jobs and took more than half a million dollars out of the local economy each month. This was an economic disaster for the community and for many people who lived there. All the local businesses took a major hit with many having to close their doors putting still more people out of work. Sure, that money merely moved to Chicago so the overall economy never missed a beat. Unfortunately, the proponents of the one-size-fits-all minimum wage never consider that there are those in our nation who would be well served to have a job paying less than the federal minimum.

There are many areas in our country where the cost of living is several times what it is in other areas. Try to live in New York City for what it costs to live in rural Indiana for example. Yet the minimum wage is the same everywhere. Why not adjust the minimum wage to account for the cost of living variations due to location? Exemptions from the minimum wage could also be granted certain age groups or depressed localities. This could be done on a city by city, cost of living basis.

The cost of living standard based on a national average of 100 is as low as 70 in some rural areas and as high as 200 in New York City and 179 in Boston. Interestingly, Buffalo, NY is 86.7. Rural Indiana areas go as low as 76, rural Mississippi and South Dakota as low as 70. These are actually for small towns in rural areas. Using another basis, household expenditures are as high as $70,000 in Boston and as low as $20,000 in rural South Dakota. It is interesting to note that in spite of the high cost of living, New York City households spend only about $45,000 per year, much less than in Boston.

Should the minimum wage be pegged to the cost of living index at $5.75 for the national average of 100 the result would be as follows. In New York City the minimum wage might be set at $11.50 per hour while in rural Nevada it might be as low as $4.00 per hour. I feel certain you could find more workers at $4.00 per hour in rural Nevada than for $11.50 per hour in New York City, at least on a percentage basis. In Boston the minimum wage would go up to $9.45 per hour and In Indianapolis it would be near the national average at $5.88 per hour. This might even tempt businesses who are shipping jobs overseas to invest in depressed areas with low minimum wages. Liberals and unions would have a fit, but lots of young people who would like to work near their rural homes might stay there and work if they knew they could earn enough for a basic lifestyle.

If the minimum wage were pegged to the average household expenditures the story would be quite different. In New York City the minimum wage might be set at $6.50 per hour while in rural Areas around the country it might be as low as $3.00 per hour. I feel certain you could find more workers at $3.00 per hour in rural areas than for $6.50 per hour in New York City, at least on a percentage basis. In Boston the minimum wage would go up to $10.65 per hour and In Indianapolis it would be higher than NYC at $7.45 per hour.

Perhaps a mix of the two in some proportion would be a better basis for a variable minimum wage. Certainly, the minimum wage is a detriment to a large portion of the nation. Where it is too high it helps drive business and industry away. Where it is too low it helps create a labor shortage.

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