Could tying minimum wage increase to cost of living help sell Biden’s proposal?

A centerpiece of the Biden administration’s economic proposals is its pitch to double the national minimum wage to $15 an hour. Whether Biden’s proposal makes it to a final vote in the pending pandemic relief bill or returns later in the year as free-standing legislation, it faces an uphill battle for enactment in the way it’s proposed.

Not only is GOP opposition strong, but members of Congress who represent rural areas, including some Democrats, worry about a one-size-fits-all national mandate’s impact on their local businesses, existing jobs and tax revenues, not to mention their economic development efforts to add jobs and expand the tax base.

Governing finance writer Gerard Miller says there is another approach, though, that could allay some of those fears and perhaps blunt some of the opposition: indexing the minimum wage to the local cost of living.

The national minimum wage standard could be adjusted—both up and down—for local cost-of-living differences on a county-by-county basis. The tools for such adjustments are readily available, Miller writes.

For years, the Department of Housing and Urban Development has calculated a fair market rent index for metropolitan statistical areas. The federal government also makes “locality” adjustments to some of its workers’ pay for local cost-of-living differentials. Such methodologies can readily be enhanced to use local apartment and house rental rates, along with “bottom tier” house prices, for data points.

Workers in urban, high-income, high-cost counties (like Bergen in New Jersey, Fairfax in Virginia and San Francisco in California) would be eligible for a federal minimum wage several dollars higher than the national standard. Those working in low-income, low-cost rural counties would be subject to a commensurately lower minimum wage, unless their state’s local mandate is higher.

Given that housing is just one component of living costs, and to avoid bizarre extreme outcomes, there would need to be upper and lower limits on such adjustments—perhaps establishing a range of plus or minus 25%.

Read Miller’s full column, which details the history of the current federal minimum wage and explains his reasonings for a wage index.