The president last night talked about how it was time to raise the minimum wage. While the arguments regarding whether this will create more jobs or reduce employment have been noted before (such as here), one thing that is universally accepted is that this kind of change will impact some areas more than others. Richard Florida at The Atlantic Cities has produced a great look at how this will impact some of the wealthiest and some of the poorest labor markets. You can view it here:
http://www.theatlanticcities.com/jobs-and-economy/2014/01/1010-minimum-wage-would-affect-some-metros-much-more-others/8235/
The big takeaway for me is that raising the minimum wage in many major metropolitan areas may barely move the needle, but in others it could almost bump someone into the next income quintile. One way to examine the impact this would have is to compare the salary of the minimum wage worker against a fairly decent benchmark for the cost of living in an area, home values.
Lets look at Seattle, WA and Myrtle Beach, SC. In Seattle, according to Trulia, the median sales price was $416,000 in the months of October to January. In Myrtle Beach, according to Trulia again, the median sales price was $154,000 in the months of October to January. Both are well known metropolises with major businesses (different industries dominate such as technology in Seattle and tourism in Myrtle Beach), however both clearly have different costs of living, illustrated by differing home prices. However, if the minimum wage was extended to both areas, the recipients of it would be effected in dramatically different ways.
In Seattle they would barely notice the change and would only be marginally better off. They would go from having an income that is 27 times less than the median home price to having one that is 19 times less than the median home price. Truly time to live it up. It should be noted that Seattle has a higher minimum wage than the federal minimum (9 bucks, so the jump would be from 22 times to 19 times)
But for the worker in Myrtle Beach, the difference would be incredible! Currently they would have an income that was 10 times less than the median home price, but with the increase they would go to having an income 7 times less. If two people making the minimum wage were to purchase a home together (a husband and wife perhaps) they could probably afford it using back of the envelope mortgage math (i.e. your home shouldn't be more than 3.5 times your gross income).
This difference might also help explain some of the positions taken by supporterss and opponents of the hike. If you support the hike in Seattle it is easy to see how a marginal increase for the working poor will help them out and the larger economy as well. The folks at minimum wage in Seattle already have to spend nearly every dime of their income on necessities, more funds will give them some breathing room and boost local economic growth as they purchase items they heretofore had to give up. While businesses may loose some profit, they actually could make it up as spending increased on marginal goods and services. Most minimum wage workers will be spending their money locally, not on trips or exotic imports. Some people may loose jobs as a result of cost cutting measures, but many operations are already run so lean in these high cost areas that the changes can be absorbed or offset with marginal cost increases.
In Myrtle Beach however, the owners of small businesses may themselves be making only so much more than their employees, especially as a low cost of living allows them to operate at lower margins (and may force them to as prices strive to stay comparably low). This would force them to either raise prices, which reduces demand, or cut workers, which eliminates jobs, to make up the difference in their margin. An example of the price cost would be to look at a strictly labor example, say a bike messenger delivery service, that could be forced to change prices by almost 30% to recoup the costs, or lay off the slowest rider until the 30% savings is recovered. This sudden change could have a real chilling effect on this local economy as owners and managers limit investment and focus on retooling their businesses to handle these changes (although over time it would eventually work itself out as businesses return to a price and labor equilibrium). This may explain the vehemence many business owners from these areas have to the increase and the concerns and passion shown by their political representatives.
I bring attention to these issues because the minimum wage debate is one that many see as critical to advancing job creation in our country. However, our country is big and vast with many different regions that have very different economies. Mandating a central change across the country will have different results in these different economies. As this conversation continues it's important to keep in mind that the rules change from area to area, industry to industry, and what seems like a panacea for job creation in one area really is a job killer. All politics is local, it was once said, and perhaps all job creation is as well.
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