Wednesday, January 10, 2007

Minimum Wage Adjusted by Cost-of-Living?

An interesting argument from the Cato Institute suggests that a uniform national minimum wage of $7.25/hour is fundamentally unfair because it has a siginficantly different impact on different areas of the U.S. based on difference in cost of living, and the minimum wage should possibly be adjusted by Congressional districts, based on cost of living?

For example, the median home price in San Francisco is $750,000 and the median price home in Decatur, IL is only $86,000. Why should the minimum wage for unskilled workers be the same in both cities when there is almost a 800% difference in home prices?

From Cato: "In areas where the cost-of-living is close to the national average, the minimum wage would be around $7.25. In Manhattan and San Francisco – where it costs twice as much to live when compared to other areas, like Kansas City – the minimum wage would be at least $14.

This would set off all sorts of protests from congressmen in California and New York districts in which the upward adjustment is greatest. Now the businesses in their districts would feel a pinch they wouldn’t feel under a non-adjusted minimum wage. Those formerly enthusiastic congressmen might even start to question why it’s the federal government’s business to meddle in the often complex process – going on all around the country within hundreds of companies and cities, each of which are faced with vastly different economic situations – by which an employer and employee come to their own agreement on compensation for employment. And isn’t that the sort of debate we should be having?"

Bottom Line: If the minimum wage was adjusted by cost-of-living in a given district, it's a pretty sure bet that congressman in NY, New Jersey, CA, FL and Hawaii would be much less enthusiastic about raising it.

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