Local Minimum Wages vs. the Federal Minimum Wage

by Reihan Salam

One of the central arguments against a federal minimum wage is that, as Michael Greve has argued, it represents cartel-like behavior:

Cartel federalism is competitive federalism, upside-down: it systematically suppresses healthy policy and economic competition among states. 

The federal minimum wage is a state cartel. On one side, it protects states with high-wage industries. On the other side, states that would like to compete for business—and to reduce unemployment, especially youth unemployment—are effectively prohibited from doing so. 

Richard Florida doesn’t offer the cartel critique of the federal minimum wage. But he does make the important yet often neglected point that the median hourly wage varies dramatically across U.S. metropolitan areas, and if we were to set the minimum wage at 50 percent of the median hourly wage, as proposed by left-of-center scholars like Arindrajit Dube have recommended (a proposal I consider deeply unwise, but we’ll bracket that for the moment), we’d see local minimum wages in the neighborhood of $15.72 in high-productivity metros like Silicon Valley and $8.93 in in low-productivity metros like the Orlando area.

It’s worth thinking through the implications of such a high local minimum wage in high-productivity regions where occupational licensing and zoning regulations already contribute to a high cost of living. One of the reasons high-productivity regions tend to be relatively unequal is that the concentration of skilled professionals generates demand for in-person services performed by less-skilled workers. The (relatively) low cost of specialized in-person services stimulates demand, and it also stimulates business-model innovation, e.g., 24-hour nail salons and other specialized, labor-intensive amenities that depend on density.

That said, I’d rather see efforts to increase minimum wages focus on the local and state levels than the federal level. As we’ve discussed, however, the issue is very politically potent, and conservatives haven’t done a good job of offering robust and attractive alternatives. 

For a nuanced take on the minimum wage debate, I recommend David Neumark’s ”The Minimum Wage Ain’t What It Used to Be.”

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.