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My 2 cents on Minimum Wage


Pile of American Coins

Since there’s been such a row over President Obama’s plan to increase minimum wages, let me offer my $0.02 regarding proposals to hike the federal minimum wage.

My problem with POTUS’ minimum wage plan is not a “big business versus the little man” issue or that I think people should just accept that they live below the poverty level; no person with a full-time job should have to suffer that. My problem is that the proposal is a classic “Big Government” one-size-fits-all solution.  In fact, it smacks of another classic government approach: do as I say not as I do.

For its own workers, the Federal government uses a regional Locality Pay as specified in 5 CFR 591.205 of the Office of Personnel Management code. In theory, the government has calculated the actual cost of living in different parts of the country. So, every federal worker has a base salary as well as an adjustment depending on where in the country he or she works. For example, if I’m a salary grade 7 civil servant in a non-locality pay area, I would make $39,179 per year, which is actually base + 14.16%. If I relocated to Maryland and kept my salary grade then I would make $42,631 per year or base + 24.22%. There is no incentive for me to move to Maryland for salary alone because it costs more for the average person to live in Maryland than in other locales.

Of course the Locality Pay schedules are lacking because not every region is specified and many of the rates seem strangely high.  Perhaps a better set of figures is the US Census Bureau’s Cost of Living Index.  Regardless of what index you use, it is clear that cost of living is different in different parts of the country.

If minimum salaries are going to be mandated (and whether they should be is a different debate), then instead of arbitrarily upping a national minimum wage there should be a national minimum base wage that gets adjusted according to locale. The citizens of SeaTac, Washington, which has a high locality rate (21.81%), decided to raise the local minimum to $15 per hour.  If they were taking locality into account, and I doubt they were, we could presume that other areas of the country could achieve similar goals with a lower minimum wage.

In conclusion, rather than attacking the income gap with a blunt instrument that overcompensates for some and is not enough for others, legislators should use a “precision” instrument–possibly even the one that already exists and that it uses for its own employees.

Incidentally, the lowest Federal salary is $20,527 per 2087-hour year, which equates to $9.84 per hour and is indeed above the $7.25 minimum wage.