One of the hottest topics in American politics, and economics too, over the last year has been the ongoing debate around the federally established minimum wage, which presently sits at a rather lowly $7.25 an hour. We won't opine on whether the government should or shouldn’t have a minimum wage, but simply shed some light on the situation.
A brief history. This rate of $7.25 hasn’t changed since July 24th, 2009 when it was upped from $6.55 an hour. From 1995 to 2009 it increased by $3, and has moved $0 since. The fed minimum hit its peak value back in 1968 if we adjust for inflation, and has steadily declined since as the adjustments made to it have come at an increasingly apathetic rate.
The state of the situation
Our most recent data shows that only about 2.3% of Americans are making the minimum wage or less. Not bad, right? Well, let’s also consider the fact that about 28% of the population still makes below $15 per hour, which equates to 39 million people. $15 per hour works out to be $2,400 a month if we assume a 40 hour workweek.
That $2,400 is enough to “get by'' in some states, and not even enough for rent in other locations. As you'd imagine, raising the minimum wage to $15 isn't a simple fix.
States also have different minimum wages, and so do cities.
- San Francisco has a minimum rate of $15.59 per hour because, in 2016, California enacted a gradual increase in the state’s minimum wage that's set to continue through 2023.
- Georgia’s true minimum is actually just $5.15 per state legislation, though most employees are protected by the federal rate and the FFLSA.
- There are also 38 states with a minimum wage of around $10 or below, and 20 of those are $7.25 states. At those rates, $2,400 becomes $1,160 to $1,600 a month, which is tough going in any locale.
Different locations have different implicit costs, so let’s benchmark some relevant statistics. According to Zillow, the median average cost of a home in Georgia is about $221,000 as of December 2020, which is actually up 8.3% over the year. Montana is at about $245,000, New York is $353,000, Kansas is just $169,000, and of course California clocks in at $635,000.
Broad range average housing costs are simply a leading indicator of the overall purchasing power in an area and are positively correlated to an overall higher price for goods in general, which is pretty clearly observed in most places.
You can easily extrapolate how this pertains to and influences the debate over minimum wage, and how it’s abundantly clear that different locations require different levels of income from their residents in order to stay above the poverty line.
So what do we think this all means?
Because of this, uniformity loses to a nuanced situational approach with money. The government likely can’t “fix” this in one sweeping motion, and definitely not without significant growing pains. A federal bottom-line requirement for employers can serve as a moral and financial guard rail of sorts, but it could never dream of taking into account all the intricacies of the entire country’s economic situations.
Ultimately, it will likely be up to the states and municipalities to take ownership of their local community and the legislation governing their businesses.