Labor advocates scored a major victory on Tuesday: Los Angeles County, the nation’s most populous, took a step toward raising to its hourly minimum wage to $15. A national movement has formed around raising the minimum wage to that level, but its value depends a lot on where a worker lives.
While minimum wages range from the federal floor of $7.25 in 20 states to $9.47 in Washington state, they are only as valuable as what they can buy, which also varies by geography, according to an analysis of purchasing power by state. New York ranks among the top 10 states for its minimum wage, but factor in the cost of living, and it falls to the bottom 10. West Virginia’s middle-of-the-pack minimum wage, on the other hand, is actually fairly valuable compared with other states, when considering prices.
“Even in some states that have enacted higher minimum wages most recently, the relative value of those is still quite low when you’ve made this adjustment,” said David Cooper, an analyst with the Economic Policy Institute, which often advocates for pro-labor policies.
Take Hawaii, New Jersey, New York and Maryland, all of which recently raised the minimum wage. All but Hawaii rank among the top third of states. But each falls to the bottom 10 when that minimum wage is adjusted for its purchasing power. (To their credit, Hawaii, New York and Maryland have future scheduled increases.)
The comparison is made possible by using each state’s regional price parity, a relatively young government indicator for comparing prices across geographies. At the extremes, the cost of goods and services is about 13 percent below the national average — i.e. a dollar goes further — in Mississippi and Arkansas and 16 percent above the national average in Hawaii.
The measure factors in goods, housing and other services, with housing showing a much wider gap between extremes than the other categories.
“That is the single largest driver when it comes to regional price differences, so policymakers wanting to do something about this or sensitive to these things need to look at what housing policies look like in these regions,” Cooper said.
To their credit, state lawmakers have historically shown some sensitivity to variations in the value of a dollar, even without the purchasing power data.
“There is a strong correlation between the purchasing power parity data and the minimum wage amount, which shows that local policymakers are actually responsive to the conditions of their states,” said Alan Cole, an economist with the Tax Foundation who has mapped the variation in purchasing power by state.
As telling as the comparisons may be, Cole argued, they are more useful for lower-income workers than higher-income ones, since the purchasing power data accounts for a basic basket of goods and services.
“When you’re talking about people who just want to get by, I think looking at just kind of the nuts and bolts of regular consumption are more appropriate,” he said.
|State||Minimum wage||Adjusted minimum wage|
|District of Columbia||10.50||8.92|