The Minimum Wage and Regional Wage Structure: Implications for Income Distribution
Levin-Waldman, Oren M., Journal of Economic Issues
The issue of the minimum wage in the United States is often couched as a debate between those arguing the youth disemployment effects on one hand and those arguing the potential benefits to those in poverty on the other. Because most minimum wage earners are teenagers, the argument goes, increasing the minimum wage to assist the poor would be badly targeted. Opponents of minimum wage increases are often quick to point out that only a small segment of the labor market, generally about 6 percent, earns the minimum wage. Therefore, the minimum wage should be considered nothing more than an insignificant issue not terribly relevant to the public debate. And yet, the minimum wage often engenders considerable political antagonism. The focus on the small portion of workers who earn the minimum wage, however, has obscured some critical issues. One of the most important of these issues is that the minimum wage as a labor market institution may have an important effect on the larger number of workers who earn from some point below the statutory minimum to some point above and hence on the community's wage structure and distribution of income. My purpose in this paper is to show that as a labor market institution the minimum wage does affect different regions of the country differently and that this is all the more true when the minimum wage population is broadened to include those earning a wage within a range around the statutory minimum wage.
When legislation for the 1938 Fair Labor Standards Act (FLSA) was being debated, the fiercest opposition came from the South, where wages were considerably lower than in the industrial North (Nordund 1997, 39-40). Opposition to the minimum wage today is not restricted just to the South but often emanates from states with right to work laws--laws generally favorable to open shops and otherwise hostile to union activity. In 1996, for instance, when Congress last raised the minimum wage, 17.5 percent of representatives from right-to-work states compared with 11.5 percent of all representatives in the House voted against the increase. Similarly in the Senate, 37.5 percent of members from right-to-work states voted against the increase compared with 25.5 percent of all members who voted against the increase. On the other hand, 90.5 percent of representatives in the House from high-union-density states voted for the increase compared with 88.5 percent of all House members. In the Senate, however, the difference was much larger: 90 percent of members from high-union-density states voted for the increase compared with 74.5 percent of all Senate members who voted for the increase (Levin-Waldman 2001, 161).
In this paper I examine the influence the minimum wage has on a region's wage structure and how variations in wage structure from one region to another may affect the general distribution of income by looking at the effects of region on who earns around the minimum wage, defined as those earning from some point below the statutory minimum to some point above. My analysis is based on census data from the Integrated Public Use Microdata Series (IPUMS) for the years 1940 through 1990. The data will show that when controlling for educational attainment and industry type, the location of workers--the regions of the country where they work--will play a role in determining who is more likely to earn around the minimum wage, largely because of the types of institutions in them.
Ultimately, this paper argues that labor market institutions like the minimum wage and unions have a role to play in ensuring a more equitable distribution and that the decline of these institutions in recent years has played an important role in increasing wage inequality (Craypo and Cormier 2000; Wallerstein 1999; Lemieux 1998; Galbraith 1998, 142-144; Palley 1998, 127-132; DiNardo and Lemieux 1997; Machin 1997; Lee 1997). A federal minimum wage in a low-wage region can effectively remove regional disparities by forcing up the bottom of the wage structure. …