Are State Governments Doing A Good Job of Keeping the Minimum Wage Successful?

There is a standard federal minimum wage required across the nation; however, each state individually may adopt their own rate, as long as it does not fall below that of the federal guideline.  Some states choose to maintain the standard wage set by the federal government, and each state has many reasons for acting in the way that their legislature chooses.  Which method of paying its workers is most effective and are individual states helping or hurting the minimum wage cause?

Inflation Compensation

Some states are raising their minimum wage above the federal level to compensate for inflation.  While this choice helps those individuals in beginning or lower paid positions, it closes the gap between those individuals and others in “higher paid” or more skilled positions.  The question becomes does one really need to have the education and credentials if they are only making close to that of a minimum wage worker.  This perhaps decreases the drive among other workers to spend money to acquire extra skills.

Another concern regarding raising the state wage due to inflation is that inflation is not a onetime spike in cost, it continues to occur overtime…forever.  If the minimum wage in a given state increases to accommodate higher prices, it is the business owners, particularly small business owners, who end up paying the price for the spike in wages.  To save their business, they are forced to raise prices; but then due to this inflation, they are required to raise their wages.  This circle continues and they never get anywhere.  They essentially break even and never get ahead and if business dies, so does their company.

Cost of Living

States with a substantially higher cost of living generally have a higher minimum wage.  As the cost of living increases, so does this wage; but yet again, individuals in higher paid positions remain at their same pay level without an increase, and the gap between the two grows considerably smaller.  This may not seem like a big deal at first and we may not necessarily notice their close proximity now, but over time, an increase in the necessary cost of living is continually inevitable; thus the minimum wage will continue to increase, until perhaps, we are all middle class. 

This is an interesting problem, and not one with an easy solution.  Capping the minimum wage isn’t an effective answer in that eventually there will be such a great divide between the rich and the poor.  The rich will be richer and the poor will live at poverty level.  Raising the wage now, is an effective solution for now; but it is temporary, in my opinion.

Unbalanced Wages

By deviating from the national precedent for minimum wage and developing their own base standard, states are establishing an unbalanced base wage for basic services.  This would be fine, except that this base wage directly affects the wages of individuals holding positions above that individual throughout the company, all the way to the top.  When this differs from one state to the next, it can begin to cause issues with individuals wanting to leave a state with a lower pay rate, to establish themselves In one with a higher base rate, in order to get paid more for their same skills.

Essentially, the states with a higher minimum wage may have increased populations due to individuals desire for higher pay.  This cause and effect chain could go on and on…more housing is needed for the higher population, taxes are increased, cost of living goes up, pay increases, individuals in state A want to move to state B because they will make twice as much for the same amount of work and it begins again…

Soon our population as a nation will be so sporadically divided and lopsided in its weight as a whole that states with an already high poverty level will see an additional increase.  Poor states will get poorer as people desert them in search of slightly more.  Expensive states will get more crowded and more expensive, and there will be more competition for these jobs paying high minimum wage and there will be a higher unemployment rate.

All this aside, requiring the individual states to maintain a standard wage and not allowing them to deviate from that is not the answer either.  There is a name for that I believe and that is not what our great nation is about.  There has to be some logical solution, it is just hard to find among all these temporary ones.

George Gallagher works with the privatestudentloan leader, cuStudentLoans. When not helping students figure out their best options for funding their schooling he writes for a handful of finance blogs.

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