The Minimum Wage and the Cost of Living

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

President Biden’s coronavirus stimulus package has the intention of flooding the economy with money at a time when economic growth is sputtering. Ironically, it contains one provision likely to create exactly the opposite of what he intends: raising the national minimum wage from $7.25 to $15.00 per hour.

Treasury Secretary Jane Yellen says a $15.00 minimum wage will help the economy more than it would harm it, according to a January 24, 2021, article in MarketWatch by Elisabeth Buchwald. She says a $15 minimum wage will, "really help many" and that the job losses will be "very minimal, if anything."

Research from the Congressional Budget Office found that while the income of 1.7 million workers would increase, there is a 66% probability that 1.3 million workers would actually lose their jobs by 2025, with a maximum job loss of 3.7 million.

The problematic issue with raising the federal minimum wage is that there is no consistency in minimum wages between states. The highest include $13.50 in Massachusetts, $13.69 in Washington, $13.00 or $14.00 in California depending on the size of the business, and $15.00 in the District of Columbia. The lowest of $5.15, in Georgia and Wyoming, is superseded for many businesses by the current federal minimum of $7.25.

Why is that a problem? Wouldn’t it be a good thing for every state to have to pay a fixed federal minimum wage?

A flat "one size fits all" wage does not consider the enormous local variations in cost of living and taxes. What matters more than the dollar amount of the minimum hourly wage is the amount workers have left after paying taxes and what the remainder buys in goods and services.