The Great Divide? How the Minimum Wage Impacts Red and Blue States
In 2014 Seattle became one of the first cities in the US to approve a law phasing in a $15 an hour minimum wage — a rate more than double the current federal minimum of $7.25. Since then, similar laws have spread to other cities, while earlier this year New York and California became the first states to adopt a $15 minimum.
The campaign to boost the incomes of the nation’s most poorly paid workers has a great deal of momentum and has featured prominently in this election cycle. Initially confined to the Democratic primary contest between Bernie Sanders and Hillary Clinton, Donald Trump broke with Republican orthodoxy this July when he suggested that the current rate of $7.25 “has to go up” — although he stopped short of advocating a jump to $15 (and has also suggested that the matter should be left to states to decide).
It’s easy to understand why the minimum wage raises passions, of course. In the past, it was worth considerably more. At its highest purchasing value in 1968, the minimum wage was $1.60 an hour — $11.10 in 2016 dollars. When the current rate was set in July 2009, $7.25 had the spending power of $8.16 today. However as costs have risen, it has remained unchanged. For instance, a gallon of milk cost $2.69 in 2009; seven years later it costs $3.98 — and yet 1.3 million Americans are still making the flat federal minimum of $7.25 an hour.
Meanwhile, there appears to be a partisan divide: in 13 out of 20 red states the federal minimum applies, whereas in all 14 blue states local legislatures have set a higher rate. Does this mean that minimum wage workers in red-leaning states are earning less than their Democrat-voting counterparts elsewhere? Well, it’s a little more complex than that. To truly understand the impact of the minimum wage you have to adjust for cost of living. In this Indeed election spotlight, that’s exactly what we do.
The spending power of today’s minimum wage
Today, cities and states can choose whether to use the federal number or set their own minimum. In 13 out of 20 “red states” that are solidly or leaning Republican (based on a Gallup analysis of party affiliation) the minimum is $7.25; by contrast, none of the 14 blue states use the federal minimum wage, having opted for higher state minimum wages instead. As a result, the average minimum wage in red states is $7.66, versus $9.05 in blue states. Swing states have the lowest average of all: $7.54. On the face of it, then, people making minimum wage in blue states earn 18% more than their red state counterparts.
Straightforward? Let’s adjust for cost of living.
In the chart, all 50 US states are ordered from left to right according to whether they lean Democrat or Republican (Gallup excludes the District of Columbia). The orange line represents the 50-state average of $8.10 after adjustments based on Bureau of Economic analysis (BEA) data are applied. As we can see, blue and red states are dispersed fairly evenly above and below the line when it comes to the spending power of their minimum wages.
In blue states, the cost of living is on average…