Characteristics of States with Higher Minimum Wages

08 May 2016 12:57 PM | Mike Lillich (Administrator)

By Oren Levin-Waldman


First published in the Yonkers Tribune.


As more states, and even localities, enact minimum wages that are higher than the federal minimum, are there contributing demographic factors that can easily be identified? It would be easy to assume that these are simply blue states and therefore they would be naturally predisposed to passing them. Or it could be that they are simply places where the cost of living is higher and that policymakers understand the challenges of trying to support a family on less. And yet, that would appear to be assuming too much.


If we follow the logic of the median voter theorem, then states, where the distance between the median voters’ income and average income of society is greater than this distance for the nation as a whole, should be pursuing policies intended to achieve greater redistribution. This redistribution is to be achieved through greater taxation on the wealthy in order to pay for programs that assist those at the bottom of the distribution. In fact, the median voter theorem postulates that tax rates are dictated by this distance between median and average incomes.


What then, are the characteristics of states with minimum wages currently above the federal minimum wage? These states typically on average are blue states where the cost of living is higher. But data from the 2014 Current Population Survey (CPS), a year when many states began raising their minimum wages, add some interesting dimensions. In many of these states, the value of the dollar is lower than the rest of the nation, meaning that it buys less. Translation: it costs more to live there. But these states also have a higher tax rank, meaning their taxes are among the highest in the nation.


There are perhaps a couple of ways this issue could be approached. The first is that because both taxes and the cost of living is so high it is only a foregone conclusion that minimum wages would be raised because low-wage workers need higher wages in order to meet their obligations. Of course, that assumes that policymakers are thoughtful people who truly care about the needs of the working poor. And yet, if this were true, they would not have waited until 2014 to really begin addressing the issue.


The second is to view the high tax rank as a proxy for redistribution. In these states, which are also blue, there may be more redistribution precisely because the cost of living is so high and the low wages that those at the bottom earn are not enough to support themselves and their families above the poverty level. Therefore, people at the bottom need subsidies. And because these states are blue, legislators are more likely to vote for them because this is also a way to get the votes of those at the bottom of the distribution. In other words, low-wage workers in need of subsidy have a vested interest in voting for candidates who promise these subsidies to them, and these subsidies are achieved through redistribution.


The data actually suggests that states where the distance between median and average income is greater than the nation, are blue and have high union density, and where minimum wages are higher are more likely to have higher tax ranks. In other words, they are more likely to be redistributive states. The variable that appeared to have the greatest effect was high union density, followed by the median voter theorem, followed by being a blue state. This, of course, confirms the hypothesis of the median voter theorem that the greater the distance between median and average earnings, the more likely there is to be redistribution. But this would only appear to be the case in blue states. The low dollar value variable wasn’t nearly as important as high union density and median voter theorem.


But do these variables also affect whether a state is more likely to have a minimum wage higher than the current federal minimum wage? Here the median voter theorem variable has a negative effect, but the critical variables are low dollar value, high tax rank, and high union density. Interestingly enough, the median voter theorem did have an effect when it was the distance between median and average family income being greater than that distance in the rest of the nation. Moreover, the data suggested that being a blue state had no real impact. Therefore, states where the dollar value was lower than the rest of the nation, both union density and tax rank was high and distance between median and average family income was greater were  more likely to have high minimum wages than the federal minimum.


One obvious conclusion might be that the public does not view the minimum wage in the same light as redistribution and that the two are affected by different factors. And yet, that the family median voter theorem has an effect for higher state minimum wages where the individual median voter theorem does not might suggest that higher state minimum wages are critical to supporting a family, especially in states where the cost of living is higher.


That the minimum wage is higher in those states where there is higher union density is important because historically the minimum wage rose when there was a constituency behind them, and that constituency was always organized labor. Of course there is a logic that minimum wages would be higher in states that have higher taxes and where the cost of living is higher. But we have no way of knowing what motivates legislators to support higher wages. Still, the most important factor appeared to be the low dollar value in those states.


We do know that where income inequality is higher that the distance between median and average incomes will be greater. States where that distance is greater are also more likely to adopt redistributive policies. But also states where the cost of living is higher and the tax rank is higher are also more likely to have higher minimum wages.


I have suggested many times in this space that higher minimum wages are preferable to the standard redistributive policies supported by typical blue state politicians. In those states where minimum wages are higher, income inequality tends to be lower. To the extent that income inequality is strongly correlated with the distance between median and average incomes, it then follows that the distance between median and average incomes will also be less in those states where minimum wages are higher. In other words, there is less of a need to redistribute income through the standard model of over-taxation on the wealthy to pay for programs as subsidies to those at the bottom.

 

levin-waldman_-wage-policy-income-distribution-and-democratic-theoryJust published: Wage Policy, Income Distribution, and Democratic Theory:
http://www.routledge.com/books/details/9780415779715/#review

 

 

Oren M. Levin-Waldman, Ph.D., is professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as part-time faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to: olevin-waldman@metropolitan.edu

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