Nine [Dollars] Is A Magic Number

Greg Mankiw asks a useful question:
There is one question I would like to see some reporter ask Alan Krueger, the president's chief economist: How did they decide that $9 per hour is the right level?  Why not $10 or $12 or $15 or $20?  Presumably, the president's economic team must believe that the adverse employment effects become sufficiently large at some point that further increases are undesirable.  But what calculations led them to decide that $9 strikes the right balance?
From his chair in Boston, Massachusetts, it is probably difficult for him to understand the political genius behind a $9 minimum wage. It is incumbent on someone who lives in Utah, or Montana, or Oklahoma, or... Texas... to point out why Obama would like to set the minimum wage at $9 instead of >$10. So let's get to it.

Consider this useful link from the US Bureau of Labor Statistics, which provides the following tables, showing metropolitan and non-metropolitan data for cashiers:

Metropolitan areas with the highest employment level in this occupation:
Metropolitan area Employment (1) Employment per thousand jobs Location quotient (9) Hourly mean wage Annual mean wage (2)
New York-White Plains-Wayne, NY-NJ Metropolitan Division 106,250 20.99 0.81 $10.28 $21,370
Chicago-Joliet-Naperville, IL Metropolitan Division 89,400 24.95 0.97 $9.93 $20,660
Los Angeles-Long Beach-Glendale, CA Metropolitan Division 85,340 22.32 0.86 $10.84 $22,540
Houston-Sugar Land-Baytown, TX 57,660 22.60 0.87 $9.44 $19,640
Atlanta-Sandy Springs-Marietta, GA 54,480 24.45 0.95 $9.39 $19,520
Washington-Arlington-Alexandria, DC-VA-MD-WV Metropolitan Division 47,290 20.47 0.79 $10.39 $21,620
Philadelphia, PA Metropolitan Division 43,950 24.21 0.94 $9.97 $20,750
Dallas-Plano-Irving, TX Metropolitan Division 42,220 20.65 0.80 $9.39 $19,520
Phoenix-Mesa-Glendale, AZ 35,120 20.68 0.80 $10.97 $22,820
Minneapolis-St. Paul-Bloomington, MN-WI 34,290 20.04 0.78 $9.82 $20,430

Notice how none of these metropolitan areas have an hourly mean wage below $9.

Now let's take a look at the same data as applied to non-metropolitan areas:
Nonmetropolitan area Employment (1) Employment per thousand jobs Location quotient (9) Hourly mean wage Annual mean wage (2)
Kansas nonmetropolitan area 11,450 30.08 1.16 $8.56 $17,800
Other North Carolina nonmetropolitan area 9,990 34.20 1.32 $8.78 $18,250
Eastern Texas nonmetropolitan area 8,600 31.04 1.20 $8.73 $18,160
Balance of Lower Peninsula of Michigan nonmetropolitan area 8,210 29.77 1.15 $9.62 $20,020
Western Central North Carolina nonmetropolitan area 8,170 33.73 1.31 $8.88 $18,460

Interesting. Only one region shows a mean hourly wage above $9, and that is a the non-metropolitan region of Michigan that is nearest to Detroit, Ann Arbor, and Toledo.

A deeper dive into the BLS data reveals that California's mean hourly wage for cashiers is $9.81, while that of South Carolina is $8.67. The mean hourly wage for cashiers in New Jersey is $9.16; in Nebraska it is $8.79. In Massachusetts it is $9.57, while in Missouri it is $8.86.

There certainly does seem to be something magical about $9 per hour. It seems that highly populated, metropolitan, left-leaning regions of the country - those with existing "living wage" laws, for example, will be unaffected by the impending unemployment that comes with a rise in minimum wage.

On the other hand, sparsely populated, rural, right-leaning regions of the country will suffer greater unemployment as a result of this law and will be, cruelly, politically impotent against it.

1 comment:

  1. I come down on the side of the M/W debate that believes U/E will be minimally impacted by an increase in M/W, but you do highlight something interesting about how the M/W increase will impact areas different.

    Take a look at this data from BLS, which looks at the percentage of hourly workers making M/W or less (table 3):


    For instance, Georgia and Alaska had M/W rates at 7.25 in 2011, and so an increase to 9.00 would impact both states equally it would appear. However, as a % of hourly workers making at or below M/W, Georgia stands at 9.6% while Alaska is at 1.9%. So, an increase would appear to impact Alaska less than Georgia.

    Of course, this does not take into consideration those workers making in the 7.25 to 9.00 range, and what % of the work force earns in that range. But I think you have hit on something rather interesting.