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living wage
May 20, 2019

Does centralizing economic policy actually make any sense?

“This begs the question, When regulations are considered, why isn’t it done regionally rather than centrally?”
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When looking at policies that are demanded or approved by the federal government, it seems that most don’t make much economic sense. For the sake of discussion, let’s look at the minimum wage on the federal and the state level.

Many have lobbied the federal government to raise the minimum wage from the current $7.25 to $15 an hour and the term most often associated with it is “a living wage.” The question that always enters my mind is, What is a living wage? Defining that term would be difficult at best because cost of living is not factored into the decision. This demand has made its way into the states as well, and again, all decisions are made without an understanding of what a living wage is. The reason a living wage is so difficult to assess is that it really depends on where you live. Even within states, the variety of economics and cost of living can be dramatic.   

Let’s take for example the state of New York. New York is the sixth-richest state in the U.S. based on per capita income of roughly $41,000 per year. If you look by county, a mere three are above that range and 59 are below. The biggest reason for this variance is the cost of living. If you make $15 an hour while working 40-hour weeks without a vacation, you gross $31,200 a year. That is a higher income than the per capita income of 53 counties in the state of New York. At the same time, that income would likely put you close to being impoverished in the top four counties. This seems to be the case in most states in the U.S. Additionally, in some states, the cost of living is so low that $15 an hour would have you doing very well compared with others in your region.   

This kind of thinking can also be applied in many other areas such as income tax. If we include earnings and cost of living in the equation, we might have a much healthier middle class. What is considered wealthy in one area is just getting by in another. The comparison again would be a New York City resident making $100,000 a year who is middle class, whereas in Jamestown, N.Y., you are in the upper class.

This begs the question, When regulations are considered, why isn’t it done regionally rather than centrally? Whether the central part is a state or the federal government, the above data would suggest that decisions of this nature are best handled at the regional level, as the lawmakers in each region would likely understand their economies more deeply than a governor, a legislator, Congress or a president.     

All rules have both good and bad outcomes, no matter the intent. What helps one person can hurt another person. A small business in Jamestown, N.Y., would probably go out of business with centralized regulations on minimum wage, or at least need to change business practices with regard to the current employment model.   

There is a better way forward for this nation, and that is to stop looking at policy rules from the top down; get into the minutia of data so that reforms make sense. When seeking solutions, it is important to truly understand the problem and not just the anomalies that statistics may present as a problem.

 

READ MORE: What Are The Core Components Of A Financial Plan?

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