Putting the Minimum Wage in a Whole Different Box

There’s so much drama in Congress over increasing the minimum wage. Our plutocrat leaders can’t agree on what to do. And can you blame them? Most of them have never had to endure subsistence living. They may have had to scrape by at times to pay the mortgage on their vacation home, but that’s different from knowing that your paycheck won’t cover both groceries and rent. And there’s no end to it. If you manage to make it to the end of the month, there’s always another month.

So here’s an idea to help our beleaguered plutocrats make some real changes to the minimum wage.

1. Set a different Federal minimum wage for each State. Everybody agrees that each State has their own economic challenges, so tie their Federal minimum wage to those economies. If a State wants to set their State minimum wage higher, as many states now do, let them. If a business wants to pay a lower minimum wage, as many now do, let them by paying the same penalties as they do now. There’s not much of a change here.
2. Index each State’s Federal minimum wage to the equivalent wage of the Top 1% of household incomes in the State. States with strong economies will probably have higher incomes in the Top 1% of incomes, so those States will be given a higher Federal minimum wage. Less economically strong States will have lower Federal minimum wages.

Each State’s Federal minimum wage would change every year because it would be indexed to the income of the Top 1% of households. The IRS determines that income every year anyway so there would be no additional work. There would be no debates or negotiations, just some simple calculations. The minimum wages may go up or down from year to year, depending on State economies, but there will be no more long-term wage stagnation. Congress wouldn’t have to do anything once the system is in place.

To put the system into place. Congress would have to do two things—decide on the percentage to be used to index the State minimum wages and write the legislation. The percentage to be used to index the State minimum wages is actually easy to determine with a spreadsheet. All Congress has to do is decide on a goal for the minimum wages. Here are three goals they might consider.

• Scenario 1: MINIMUM of $11 Wage for all States. This is a goal suggested by Joe Manchin. It would allow a full-time worker to live above the federal poverty line. In this scenario, the minimum wages would be 7.595% of each State’s Top 1% Wage. Maine would be assigned a $11.00 minimum wage, inconsequential because they already have a $12.00 minimum wage. New Jersey would be given a $30.47 minimum wage, a boon to minimum-wage workers now making $11.00. The overall average minimum wage for all the States would be $17.37.
• Scenario 2: AVERAGE of $15 Wage for all States. This goal would implement the $15.00 minimum wage proposed by several members of Congress as an average of all the States. In this scenario, the minimum wages would be 6.560% of each State’s Top 1% Wage. Maine would have a minimum wage of $9.50, again, inconsequential. New Jersey would have a minimum wage of $26.32, much better than $11.00. 17 States would have a minimum wage below $15.00 and 34 States would have a minimum wage above $15.00, depending on their economies.
• Scenario 3: MINIMUM of $15 Wage. This goal would implement the $15.00 minimum wage for all of the States. In this scenario, the minimum wages would be 10.358% of each State’s Top 1% Wage. Maine would have a minimum wage of $15.00, a $3.00 increase, and New Jersey would have a minimum wage of $41.55.

The following table shows how all the States would fare under the three scenarios. For each scenario, the left-hand column is the calculated minimum wage for the state and the right-hand column is the difference between the existing State minimum wage and the new minimum wage indexed to the Top 1% income. The percentage under the scenario title is the index for achieving the scenario goal.

These scenarios expose some of the problems with the current minimum-wage system. Maine currently has a minimum wage of $12.00 but is a relatively poor state. The average income of the Top 1% households is only about $290K. In contrast, New Jersey currently has a minimum wage of $11.00 with an average income of the Top 1% households of about $800K. Minimum wage workers are much worse off in New Jersey than in Maine. Kentucky and New Mexico also don’t treat minimum wage workers as well as Maine. Overall, the correlation between the States’ minimum wages and the equivalent wages of the Top 1% of households is quite low.

It is ironic that indexing the minimum wage to the income of the Top 1% might create a new dynamic in American society. Instead of hating or being jealous of the incomes of the wealthy, minimum wage workers might appreciate their doing well. An increase in the equivalent wage of the Top 1% would lead to an increase in the minimum wage. A rising tide lifts all boats. The Top 1% wouldn’t be taxed to support the minimum wage. They would lose nothing. And despite what the naysaying fear-mongerers claim, increasing the minimum wage would benefit the economy. There would be more purchasing from local businesses and less of a need for public support.

There are many other scenarios that Congress could consider. This is an opportunity for them to show leadership in correcting an undemocratic system.