The Minimum Wage and the New Federalism?

September 26, 2014
Oren M. Levin-Waldman

Among the topics that often rise to the top of the debate in most national elections is just what the proper relationship is between the states and the national government. In other words, has federal authority usurped state sovereignty, or is more federal authority needed because the states are untrustworthy guardians of individuals’ rights? It would appear that the many states that have taken it upon themselves to either adopt their own minimum wages or raise existing ones over the federal have only rekindled the traditional states’ rights v. national authority debate, albeit it in a different form.

This form, however, appears to have an ironic twist. It is usually conservatives who argue for states rights as a way of opposing national authority that finds expression in federal policies and unfunded mandates. It is usually liberals that push for national authority over states’ rights on the grounds that a minimum set of uniform standards are required across the country, and that the states cannot be trusted. The same liberals who argue for national authority also push for a higher federal minimum wage. And the same conservatives pushing for a return to states’ rights also tend to oppose increases in the minimum wage.

One might think that liberals would oppose state efforts to advance the minimum wage in favor of a higher federal minimum wage. But the failure of Congress to increase the minimum wage and maintain it in lines with the inflation rate has apparently left them with little choice. Because the federal government isn’t maintaining the minimum wage, increasingly more states have come to the conclusion that they need to take matters into their own hands to protect the economic security of their citizens.

Those who argue the virtues of returning to traditional federalism, or what some might refer to as the new federalism, where the states assume more responsibility for domestic policy will no doubt hold these measures as sign of progress. They might point out that it is in the states where interesting policy innovations are occurring, and that in lines with Louis Brandeis’s statement that the states were the “laboratories of democracy,” policy initiatives should always be tried at the state level first. That is because if successful at the state level, it is ripe to expand it to the federal level.

At the same time, this argument might carry with it a double-edged sword. Currently, at least twenty-two states have minimum wages higher than the federal minimum wage, and data showing that there have been no disemployment effects — the loss of jobs to states with lower minimum wages — would certainly strengthen the argument for raising the federal minimum wage so as to maintain uniformity across the nation.

The lack of uniformity, however, especially in the absence of data to the contrary, only strengthens the arguments of minimum wage opponents who argue that minimum wage differentials between the states encourages firms to leave high wage states for lower ones. This only furthers the race to the bottom as states compete with one another to create low-wage jobs. It should be recalled that it was precisely because of wage differentials between the states that proponents of the initial minimum wage in 1938 made their case for uniform standards. Southern states where wages were lower than in the North opposed the minimum wage, and Northern states hoped that a uniform minimum would stop industry and jobs from moving down South.

Optimally we should raise the federal minimum wage and it should either be pegged to the inflation rate or some type of productivity index. The goal should be to ensure a minimum level of living standards for all. But it should also be a goal to arrest wage stagnation. It is important to note that median household income dropped from around $54,000 in 2010 to $51,939 in 2013. Although it has started to creep back up in the last few months, it is below where it was. Of course, some will say this is due to the aftereffects of the Great Recession and the persistence of long-term unemployment. But it may have more to do with the absence of a serious national wage policy.

When we consider that following the end of the Great Recession in 2009 there was what was referred to as the “jobless” recovery where there was still growth, this recession excuse does not quite wash. On the contrary, there was growth in productivity, which means that gains should have been shared among workers in the form of higher wages. Obviously, employers needed a legislative push, and a rise in the national minimum wage might well have been that push. There is every reason to believe that had there not been a deterioration in labor market institutions like unions and the minimum wage over the last three decades, that wages too would have kept up.

Of course, opponents of the minimum wage that derive economic benefit and corresponding political advantage from maintaining low wages have an interest in opposing any increase in the federal minimum wage for precisely that reason. And even if states raise their own, it will not have the same effect of a raise in the federal.

None of this is to say that states should not continue to raise their own minimum wage if it helps their citizens. It is certainly understandable that liberals will champion these efforts if it is the best they can get. But they aren’t enough. Conservatives opposed to the minimum wage are served by this minimum wage new federalism, even if by default. Nevertheless, it would be a great disservice to the interests of the national economy if the minimum wage specifically, and wage policy generally, were to be lost in the language of new federalism and states’ rights.

September 25, 2014

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