Minimum Wage, Part 8
H.R. 2 would not increase the minimum wage in 28 States
28 Jan 2007 in Regulatory Economics, Legislation
H.R. 2 would increase the federal minimum wage to $7.25 per hour in three steps. We've previously noted that about 2 million U.S. workers are paid at or below the federal minimum and that they predominantly belong to well-defined demographic categories:
- Part-time workers
- Young adults
- Never married women
- Those with less than a high school education
Unemployment caused by raising the minimum wage will be concentrated among workers in these categories.
Last week Sen. Jim DeMint proposed an amendment to H.R. 2 that would have made the dollar-denominated increase in the effective minimum wage constant across all 50 States. His amendment was defeated 76-18.
What does this vote imply about the purpose of H.R. 2? Its practical effect would be to eliminate interstate competition for unskilled labor by forcing up its price in States where it is currently least expensive.
DeMint's amendment would have increased the federal minimum wage by an amount equal to the dollar-denominated amount specified in H.R. 2. Contrary to H.R. 2, however, the amendment would have applied these dollar-denominated increases on top of the current minimum wage in each State.
Many States have their own minimum wage laws that are higher than the federal minimum. For unskilled workers in these States, H.R. 2 would have no direct effect on their paychecks because it won't increase their wages.
The Department of Labor has a map showing which States currently have minimum wage laws exceeding the federal minimum. Twenty-two States in blue, red or yellow would be affected; 28 States in green would not. "Green" States are predominantly located in the Northeast, the industrial Midwest, and on the West Coast.
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States with minimum wage rates higher than the Federal |
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States with no minimum wage law |
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States with minimum wage rates the same as the Federal |
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States with minimum wage rates lower than the Federal |
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American Samoa has special minimum wage rates |
Thus, H.R. 2 would not raise the actual minimum wage in 56% of the States. Instead it would force the remaining 44% of States to adopt the labor market policies of the others. This would narrow or close gaps created when "green" States raised their own minimum wages above the federal minimum.
For the States covered by the federal minimum, the effects of the DeMint amendment would be identical to those of H.R. 2. However, the DeMint amendment would have increased the minimum wage in the "green" states by $2.10 per hour when fully implemented. H.R. 2 does not.
The DeMint amendment would have preserved the existing State variation in minimum wages. In Illinois and Washington State, for example, the current minimum wage exceeds the $7.25 per hour that H.R. 2 mandates two years after enactment. The DeMint amendment would have increased the minimum wage in Illinois and Washington State two years hence to $10.10 and $10.03 per hour, respectively. H.R. 2 would have no effect on minimum wages in these States.
Because the DeMint amendment was defeated, a reasonable inference is that the purpose of H.R. 2 is to force all States up to the minimum wages set by statute in the "green" States. This reduces or eliminates interstate variation in wage rates for unskilled labor. By reducing or eliminating variation, H.R. 2 also reduces interstate competition.
Senate Amendment No. 158 (DeMint) (emphasis added):
(a) In General.--Section 6(a)(1) of the Fair Labor Standards Act of 1938 (29 U.S.C. 206(a)(1)) is amended to read as follows:
``(1) except as otherwise provided in this section, not less than--
``(A) beginning on the 60th day after the date of enactment of the Fair Minimum Wage Act of 2007, an amount equal to the minimum wage in effect on such date in the State in which such employee is employed (whether as a result of the application of Federal or State law) increased by $0.70;
``(B) beginning 12 months after that 60th day, the amount that would be determined under subparagraph (A) by substituting `$1.40' for `$0.70'; and
``(C) beginning 24 months after that 60th day, the amount that would be determined under subparagraph (A) by substituting `$2.10' for `$0.70';''.
