American advocates of a federally mandated minimum wage might want to take a page from their Canadian counterparts. In MacLean’s, Tamsin McMahon makes the case that pegging a federal minimum to a national average cost of living doesn’t make much sense because costs vary so widely across the country:
The average price of a house in Toronto hit $546,000 this month. A typical monthly payment on a 25-year mortgage at 3.5 per cent interest is north of $2,500. Meanwhile, you can buy what looks like a pretty nice house in Opasatika, Ontario, north of Timmins, for less than $50,000. That works out to a typical monthly payment of little more than $200. Yet businesses in both communities are both required to pay their workers a minimum of $11 an hour (the equivalent of $21,450 a year for a full-time job.)The Canadian Centre for Policy Alternatives, among others, has argued that an appropriate minimum wage is one that’s between 50-60 per cent of the average hourly wage in that area. By that measure, the provincial minimum wage is actually too low for many Canadian cities. But it’s also too high for others.
As McMahon points out, this is problematic because where the minimum wage is too high, it puts unnecessary burdens on business owners. Even if you think job loss due to a higher minimum wage will be negligible or at least an acceptable cost, it still makes sense to put the wage no higher than it needs to be to guarantee a decent standard of living.
McMahon’s data matches the U.S. situation well. Here too we have wide variation in costs of living, as the following graph shows. This data is taken from the Center for Regional Economic Competitiveness’ 2014 Cost of Living Index:
McMahon’s conclusion is apt for America as much as Canada: Whether or not a higher state or even local minimum wage is a good idea, a federal one isn’t. Instead of one-size-fits-all federal regulations, we should look closer at crafting policy actually attentive to America’s regional and local differences.