August 3, 2015

The real value of a $15 minimum wage depends on where you live

Where Paychecks Stretch the Most, and Least

The movement for a $15-an-hour minimum wage has scored several high-profile victories lately. New York state plans to phase in a $15 minimum wage for fast-food workers over the next few years. Los Angeles County will raise its minimum to $15 for all workers by 2021, following a similar move by the city of Los Angeles. Seattle is phasing in the $15 minimum that was adopted last year. And the huge University of California system will raise the minimum wage for its workers to $15 by 2017.

While Americans generally support higher minimum wages – a Pew Research Center survey in January 2014, for instance, found 73% in favor of a then-current proposal to raise the federal minimum from $7.25 to $10.10 an hour – wide disparities in local living costs, familiar to anyone who’s relocated for a career, create practical complications. For example, a national $15 minimum would yield $17.08 worth of purchasing power in Macon, Georgia, but only $12.26 in New York City, once the differing price levels in the two cities are taken into account.

We arrived at those estimates by using data on “regional price parities,” or RPPs, for the nation’s 381 metropolitan statistical areas. The RPPs, developed by the federal Bureau of Economic Analysis, measure the difference in local price levels of goods and services across the country, relative to the overall national price level (set equal to 100). So on average, prices in the New York metro area, which has an RPP of 122.3, are 22.3% higher than the nationwide average, while in Macon (RPP of 87.8) prices are 12.2% below average. (Not coincidentally, the push for a $15 minimum wage has been particularly strong in expensive urban areas on both coasts.)

Honolulu is the most expensive metro area in the U.S. – a $15 national minimum wage would have a real purchasing power of $12.24 there. Beckley, West Virginia, has the lowest RPP of any metro area in the nation, so a $15 minimum would have the purchasing power of $19.23 there. (Allentown, Pennsylvania, incidentally, has an RPP of exactly 100, making it the only metro area where $15 really would mean $15.)

If the goal were to guarantee low-paid workers everywhere in the country the same real purchasing power, that would require hundreds of different minimum wages, scaled to each locality’s cost of living. For example, giving everyone the same purchasing power that $15 has in New York City would cost $13.07 in Chicago; $12 in Fresno, California; $11.10 in Cincinnati; and just $10.43 in Anniston, Alabama.

Although the federal minimum wage has been $7.25 an hour since 2009, 29 states and the District of Columbia have enacted their own, higher minimums, according to the National Conference of State Legislatures – including all but two (New Hampshire and Virginia) of the 15 states with above-average RPPs.

But while state-level minimums can address cost-of-living disparities between states, they’re still subject to disparities within individual states, which can be significant. In California, for instance, the priciest metro area (San Jose-Sunnyvale-Santa Clara) is 33.2% more expensive than the least costly (El Centro). The Virginia suburbs of Washington, D.C., are 37.5% more expensive than the Kingsport-Bristol metro area, which straddles the state’s border with Tennessee. And the Chicago metro area is 34.6% more expensive than Danville, Illinois.

Topics: Economic Policy, Economics and Personal Finances, Work and Employment

  1. Photo of Drew DeSilver

    is a senior writer at Pew Research Center.

10 Comments

  1. everet presley10 months ago

    better to pay our military as they are the ones keeping us safe while they are at risk of life !! not ‘hamburg flippers’

    1. A decent human10 months ago

      Those in the military are paid. What about the veterans who end up having to be “hamburger flippers?” Our citizens deserve a living wage. ALL citizens.

  2. Martha12 months ago

    I’ve heard that some employees who are earning higher minimum wage have asked for reduced hours in order to stay on welfare rolls. This happening in Washington and Oregon States. True? If higher wages are still not enough to live on and employees are needing the extra help they have been getting, what is the answer? Another catch 22.

  3. Steve12 months ago

    Minimum wage should be at a low point so that people just entering the job market enter at minimum wage and then want to do better and get a better job instead of making minimum wage $15 an hour and then allowing people to live on that for all time

  4. David Schor12 months ago

    Raising the minimum at the federal level makes economic sense. The fact that it will have a larger impact where people are poorest is not a bug, it’s a feature.

  5. mdd12 months ago

    Raising the min wage sounds wonderful, But as a business owner who employs 8 people and all are paid above min wage, there are consequences.Because what happens to those that are making $15, is that there salary will need to go up therefore cost of doing business. So it will be made up somewhere, decrease the number of employees and increase the workload for each employee,etc. It is a catch 22.

    1. DefilerOfDelison12 months ago

      so out of those 8 how many part time employees(work less than 35 hours a week) do you have?? we find what happens is you get rid of jobs in some instance, but like you said your increasing the workload of others in the amount of hours. you not gonna cut your work force in half, or even 20%. your gonna get rid of 1 guy most likely in your instance. decreasing your work force is also only one of several ways a business can offset and increase in its costs. obviously the last thing that would ever happen is the people at top taking a slight pay decrease, but is honestly the most effective way, especially when combined with other tactics. but for the majority of business a $15 wage will lead to 4% increase in prices to make up the difference. i mean if your business cant take a small increase like that, well then your business model is very fragile and will most likely fail in the near future anyway.

      1. Mapleleaffarm11 months ago

        The 4 percent increase is a joke. Are you an employer? Try it. Then come back and tells us how a minimum wage hike from 7.25 to 15.00 is no big deal. The food industry, the primary target is a thin margin business. Fast food is especially low margin with big volumes. A niche business sells less at higher prices. It isn’t just labor costs that rise every year for a business. Energy costs can be a killer. Input costs another killer. If you raise the wage if the lowest paid employee, to keep that wage structure, all other wages must go up as well. Keep in mind payroll taxes also will increase as the minimum increases. The independent that cannot automate, will die. There will be a huge shift to automate. A year ago at Sam’s club in my city there was 1 self checkout. Now there are 4. Many more are choosing self checkout.

  6. jabzi12 months ago

    This research is only considering PRICES, not real estate costs… Base it on cost per square foot of housing, then minimum wage will make even less sense.

  7. Barrett Fletcher12 months ago

    On the lower Kenai we often say that we’ve willingly exchanged a high standard of living for a high quality of life. With a few exceptions, it looks like most of the expensive parts of the country are places that folks have chosen to live, in spite of the cost.