IT IS NORMAL for America’s federal minimum wage to go through periods of declining influence. It is fixed in cash terms, meaning it bites hardest whenever Congress raises it, then declines in relevance as earnings grow. Between 1998 and 2006, for example, the federal minimum stayed constant at $5.15 per hour, while average wages grew by around 30%. What is unusual about the last decade is that another force is also causing the federal pay floor to be left behind: state and local governments. According to the University of California Berkeley’s Labour Centre, a research hub, 44 cities and counties apply their own minimum wages today, compared to just five before 2012. At the start of 2019, 20 states raised their pay floors.
A new analysis from Ernie Tedeschi of Evercore ISI, a consultancy, quantifies just how much more assertive state and city governments have become. During the early 2000s, with the federal floor flat, they raised their minimum wages, but not by enough to keep up with the broader labour market. As a result the share of hours worked at minimum pay—either federal, state or local, and excluding tipped or salaried workers—fell, from 5% in 1998 to a little over 2%. But since 2009, despite wage growth and a flat federal minimum, the share of hours worked at some minimum wage has stayed constant, at around 5%. The explanation is growing intervention outside Washington. In 2010 state and local minimum wages were binding for around 40% of hours worked at some pay floor. In 2019 that share is fully 91%.
Meanwhile, as rich cities have raised their minimum wages dramatically, their minimum-wage workers have, as a group, been climbing up the nation’s income distribution. The average pay of minimum-wage workers—a group which now varies a lot by place—has risen to 57% of the national median wage, Mr Tedeschi finds. That is up sharply from between 39% and 44% for the entire period between 1994 and 2015.
There are advantages to the emerging patchwork of policies. The risks of raising the minimum wage are lower in rich places. Local governments might fine-tune their wage floors to economic conditions. By contrast the federal minimum wage is a blunt instrument. It cannot take into account geographical differences in productivity, economic conditions, or the bargaining power of workers.
Nonetheless, some Democrats want to restore the prominence of the federal minimum wage, by boosting it to $15. Senator Bernie Sanders introduced a bill earlier this year that would do just that by 2024, but it has yet to gather enough support from Democrats to pass even in the House of Representatives (it would have no hope in the Republican-controlled Senate). A different proposal from Terri Sewell, a Democratic congresswoman, would allow the federal minimum wage to vary regionally with the cost of living. But it has met resistance from those on the left who do not want the lower wage floors for workers in Southern states and rural counties that regional adjustments would bring.
Republican scepticism of government meddling makes it likely that the federal minimum wage will be left to wither for a few more years. For workers in places that are seeing minimum-wage increases, this may not matter much (so long as their employers do not skip town). The rest will be left to fend for themselves. If they are lucky, the hot labour-market will force their employers to fork out for higher wages anyway. They might then ask what purpose there is for a federal minimum wage that is so low as to be completely irrelevant.