Getting some sense of a $15-per-hour minimum wage

George Washington 1 dollar bill closeup

When Andrew Cuomo recently proposed raising the state's minimum wage for all industries to $15, it created a big stir -- in large part because that's a big jump from the state's current minimum wage of $8.75 (soon to be $9). And it highlights the question: What is the "right" minimum wage?

Here's one way of thinking about that question for different parts of New York State...

Some quick background

Our thinking about this topic was framed by a proposal floated last year by an economist at UMass-Amherst, Arindrajit Dube: That the minimum wage should be roughly half the median wage, and that it should be adjusted for differences in prices across the country. Why half the median wage? A clip:

This target has important historical precedence in the United States: in the 1960s, this ratio was 51 percent, reaching a high of 55 percent in 1968. Averaged over the 1960-1979 period, the ratio stood at 48 percent. Approximately half the median full-time wage is also the norm among all OECD countries with a statutory minimum wage. For OECD countries, on average, the minimum wage in 2012 (using the latest data available) was equal to 49 percent of the median wage; averaged over the entire sample between 1960 and 2012, the minimum stood at 48 percent of the median (OECD 2013). In contrast, the U.S. minimum wage now stands at 38 percent of the median wage, the third-lowest among OECD countries after Estonia and the Czech Republic.

Boiled down a lot, Dube is arguing that half the median wage is a good target, based both on history here in the US and what other countries that are economically similar to the US do. (Here's a discussion of Dube's proposal in the NYT's Upshot.)

This proposal seems like a reasonable idea, and we figured the concept would help provide some context for the $15-an-hour proposal.

Grains of salt

OK, here's the thing, though: This is a very crude look at the topic. Like, it's basically a spreadsheet scratched on the back of an envelope. Among its deficiencies, it doesn't take into account differences in the cost of living across different areas of the state (which can be big). This is, at best, a way to get a vague sense of the numbers involved.

The wage numbers from the May 2014 State Occupational Employment and Wage Estimates for New York, which are published by the federal Bureau of Labor Statistics. Start with different sets of wage numbers and you'll end up in a different place.

Numbers

First up: Median hourly wages by region -- and half median wages -- compared to the current state minimum wage, which is $8.75 (and is set to increase to $9 at the end of this year).

Based on this set of numbers, New York State's current minimum wage is 45 percent of its median hourly wage. So it's below the half-median target (.5). And that's especially true in high-wage places such as the New York City area, Long Island, and Ithaca. But it's over the target in places like Glens Falls.

And if the minimum wage rises to $15 per hour by 2021, as Andrew Cuomo has proposed?

How do we know what the median wage will be in 2021? We don't. So we guessed. The projected wage numbers above are based on the median hourly wage for each region increasing by 2 percent each year between 2014 and 2021. (Change the rate one way or the other, you'll end up with differences, of course. Again, this is crude.)

So, based on this guess, the $15-per-hour minimum wage would put New York State above the half-median wage target, less in high-wage areas, much more so in low-wage areas.

Let's discuss

Regional differences
As noted multiple times above, this is a crude look that's based on some guesses. So drawing specific conclusions isn't wise. But very generally, we think this look highlights the challenge of setting a minimum wage for New York State because of the differences in wages across different regions of the state. What might be the "right" minimum wage for the New York City will almost certainly not be the "right" minimum wage for other parts of state, especially some of the rural areas upstate. Andrew Cuomo's proposal to increase the minimum wage more slowly outside of New York City is a nod to this reality -- but still... $15 an hour just isn't going to have the same effects in NYC as it is in Glens Falls.

(And as it happens, at the beginning of this year the governor had floated a plan for an $11.50-per-hour minimum wage in New York City and $10.50 per hour elsewhere.)

Too much or not enough?
There are going to be people who say that $15 an hour is just too much a jump -- even among people who are sympathetic to raising the minimum wage. And there's reason to skeptical of such a leap because there isn't much evidence about what happens when there's such a dramatic change. It's not unbelievable that some businesses would close and there could be job losses.

There will also be people who say even $15 an hour might not be enough. We recently pointed to that family budget calculator from the Economic Policy Institute that figured a person in the Albany metro area would have to earn $31,547 a year to have a "secure yet modest standard of living." (And as some people pointed out in the comments, the calculator didn't include a line for savings.) A minimum wage of $15 today would just put a person in that range for the Albany area. It wouldn't be enough for New York City. Nor would it likely be enough here by 2021.

cuomo biden 15 minimum wage screengrab
Cuomo announced the push during an event in New York City with Joe Biden last week. / screengrab: Cuomo admin livestream

The politics
Who knows what political game Andrew Cuomo is playing with the proposed minimum wage increase. (He's always playing some sort of strategy, right?) The fast food wage board-initiated increase to $15 an hour was pretty clearly a strategy to get around the state legislature -- especially the Republican-controlled state Senate. Maybe the fast food wage, along with this latest proposal, is a tactic to get the Senate to cave for some sort of increase.

For the rest of us, it would be enlightening if the governor would share the thinking behind the proposed $15 an hour rate. Maybe he was persuaded by the "Fight for 15" rallies. Maybe his administration has numbers pointing to this being some sort of ideal target for the state, or there's a certain number of workers they want to try to help lift out of poverty. Whatever the thinking, it'd be good to see some of the work that led to this proposed answer.

More about the minimum wage on AOA:

+ Cuomo: Raise New York State's minimum wage to $15 an hour for all industries

+ How much does it cost to have "a secure yet modest standard of living"?

+ New York State set to raise fast food minimum wage to $15 per hour

+ A few ways of thinking about the minimum wage

Comments

A 15 dollar minimum wage is insane. Its a reckless experiment that's likely to produce unforeseen and damaging economic consequences.

Hopefully when we are left holding the bag folks will recognize that this was self inflicted and not due to the hoarders, wreckers and kulaks those who love to tinker with the economy also love to pin the blame on when their road paved with good intentions invariably leads us to hell.

I only wish there was a way to opt-out of the inevitable hysteria this is going to provoke (and in some cases, already has!) on social media.

NEWSFLASH: If you cannot afford to pay your employees a living wage, you cannot afford to be in business. Period. FDR said it best: "It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By 'business' I mean the whole of commerce as well as the whole of industry; by workers I mean all workers, the white collar class as well as the men in overalls: and by living wages I mean more than a bare subsistence level-- I mean the wages of decent living."

$15.00 per hour is absurd. For one, it will force businesses to cut labor forces, benefits and other employees services. Which in the end will lead to less jobs and more unemployment.

>no business which depends for existence on paying less than living wages to its workers has any right to continue in this country

I guess someone in Schenectady just got that memo...

@Mike I really LOL'ed there.
s, I am with you there

I don't agree with raising the wage for one group of people only, i.e., fast food workers, so if they are going to do it, it needs to be across the board. With that said, I don't know if I agree with the $15. My question is, what happens to everyone else's wages? Doubtful that they will increase accordingly. For example, I am an assistant retail manager. After more than 5 years in this role and incremental wages, I'm now making $15.10 per hour, so if they raise it, that means part time sales associates with be making the same as me. That's not okay, but I doubt the company will raise my wages to over $22 to keep the ratio in tact. The ripple effects of this are what concern me and aren't being addressed. That's where companies are going to really take a hit, when the entry level positions, janitorial, assistants, interns, are making what some professional/ career level staff are making, it will hit the fan.

Lynn, seems like the smart thing to do if they don't bump you is to either demote yourself to a sales associate or look elsewhere.

"NEWSFLASH: If you cannot afford to pay your employees a living wage, you cannot afford to be in business. Period."

So, if I want to work 2 hours for $20.00, and someone is willing to pay me that, you're going to use the force of government to stop me from receiving that money?

Last I checked, employers don't send armed kidnappers into neighborhoods to force people into being their employees. It's the employees who actually show up at the employer's doorstep and they are often quite eager to work for the offered wage.

Regarding FDR, it's worth pointing out that he likely had a different idea of what a "living wage" is than you do. The minimum wage during the latter part of FDRs presidency was about 30 cents an hour, which is equivalent to about $4.50 today.

@Robert - I'm not sure I'm grasping your argument here. You're saying that employers like Wal-mart are playing their employees a sub-living wage because... the employees like living below the poverty line and don't want to earn more money? Or are you suggesting that impoverished people hold out for a better paying job on principle?

My 'idea' of a living wage largely agrees with the definition you can find in its Wikipedia entry and that used by MIT in its living wage calculator: the wage necessary to support minimum food, child care, health insurance, housing, transportation, and other basic necessities (e.g. clothing, personal care items, etc.) costs. Reading FDR's statement above I find it hard to believe that his "wages of decent living" included fewer necessities than that.

I also find it objectively morally indefensible to suggest that anyone working a 40 hour week should not be able to afford these basic necessities. It's far past time for the government to start forcing employers to treat employees as actual human beings.

@s,

"You're saying that employers like Wal-mart are playing their employees a sub-living wage because... the employees like living below the poverty line and don't want to earn more money."

No, I'm saying people already living below the poverty line do want to earn more money and want to go to work at Walmart for just that very reason.

"Or are you suggesting that impoverished people hold out for a better paying job on principle?"

They could, but they'd probably be better working at the Walmart until they can find something better.

"Reading FDR's statement above I find it hard to believe that his "wages of decent living" included fewer necessities than that."

What I was trying to point out was that people had a very different idea of what was minimally acceptable in the forties and what we deem minimally acceptable now. In the forties, many people still did not have indoor plumbing or a telephone. Children often shared beds. Very few people had televisions, I think some businesses had air conditioning but probably very few homes, if any. I read recently that a grain company started putting patterns on their grain sacks around this time because families cut the sacks and sewed them into clothing. So, I have to disagree a bit. FDR probably would have thought of the requirements of the "bare necessities" you mention differently than we do today. It's worth noting that the reason we view the standard of living today differently isn't simply the passage of time. It's because of innovations that were, by and large, driven by business.

"It's far past time for the government to start forcing employers to treat employees as actual human beings"

I don't view paying someone $9.00 an hour to work at McDonald's as inhuman treatment.You might point out to me that, let's say, security guards might only make $11.00 an hour. I'd agree that I think that amount of pay is probably too low for that job, but they guy or gal making that wage agreed to it, and I also wouldn't go so far as to regard it as inhuman treatment. I think it's entirely unreasonable, and destructive, to demand that businesses be forced out of existence if they are willing to pay wages that people are willing to work for. Come to think of it, I have to wonder if AOA would be forced out of existence if your standards were imposed.

Screw it let's make everybody rich! I say make minimum wage at least $100 per hour! And a car and food to boot! If we let everyone make $100 per hour then there will be no poverty and no poor people and we will all be happy! In fact let's extend this not to just Americans but ALL people around the globe....$100 an hour for all! There poverty has been eradicated! So simple I can't believe it was so difficult! PS What planet are you people on? I guess the same one that gives trophies to everybody who really tried hard! PS LIFE IS NOT FAIR, LIFE IS DIFFICULT, NOBODY WILL GIVE YOU ANYTHING, AND ALMOST ALL PEOPLE ARE GREEDY...I think my grandmother taught me a few solid lessons!

My grandmother taught me that putting words in 'all caps' doesn't make them right.

Minimum wage isn't (or at least wasn't) meant to be able to support a family. You're "supposed" to start working a minimum wage job and work your way up through promotions. Bumping up minimum wage so fast food workers can remain in their jobs and support their family is insulting to everyone else who works hard and perhaps gets an education so they can earn MORE than minimum wage.

Bob - no, putting words in caps does not make them right, but people do have a hard time understanding that life is difficult and you're not entitled to something just because someone else has it, or better yet, has EARNED it.

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