March 22, 2019
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Maine’s minimum wage looks a little worse when factoring in prices

Maine’s minimum wage, at $7.50 an hour, is near the middle of the pack nationally. Factor in how far that money will get you, and it doesn’t look as good.

While Maine’s minimum wage is higher than the minimum wage in about 21 other states, a week’s pay at that rate only outpaces the purchasing power of the minimum wage in 12 states, according to an analysis by the Bangor Daily News.

That’s because of regional differences in prices. While prices in Maine are below the national average, many states have even lower relative prices. That, in some cases, gives residents in other states with a lower minimum wage — at the federal $7.25 — more actual purchasing power.

What you make is one element of what you can buy. The above adjustment depends on one number from the U.S. Bureau of Economic Analysis, regional price parity, which reflects a lot of information to compare spending in a state or metropolitan area to every other such area in the country.

For Maine, the number is about 98 percent, and it reflects a wide array of annual price surveys weighted for how frequently different items are purchased. Places with prices right at the national average receive a score of 100 percent.

So, where does this get us? The so-called regional price parity figures allow someone to compare the relative value of a wad of cash across various regions. Say you got a job offer of $40,000 in Hattiesburg, Mississippi, and another for $50,000 in Silicon Valley. It turns out you’d be able to paint more of the town red on that $40,000 in Hattiesburg than the $50,000 offer, when you account for regional price differences.

The same goes for the minimum wage, which at the federal level of $7.25 looks quite a bit better in states like Mississippi, North Dakota, Kentucky and others than does Maine’s $7.50 an hour.

It’s worth noting that Mississippi and five other states have no state minimum wage. And a host of jobs — most notably jobs that receive tips and in-home caregivers — are exempt from the Federal Labor Standards Act, which set national minimum wage.

Nationally, states with higher prices generally have higher minimum wages. Maryland and Hawaii are outliers among the states with the highest relative prices, averaged over the years 2008-2012, though both have wage increases to come in 2016, according to the National Conference of State Legislatures.

As of Feb. 24, that association reported 15 states have future minimum wage increases planned. Nine of those are states where the price of goods is higher than the average across all states.

Those changes make it more challenging to align price-adjustment data with the relevant minimum wage figures. That’s because prices change with time, and price calculations from the Bureau of Economic Analysis are only available through 2012. The price adjustments used in this analysis take an average of all the available years at the state and metro area levels, from 2008 to 2012.

All that said, there’s little likelihood of statewide change in Maine anytime soon. Gov. Paul LePage vetoed a bill to raise the state’s minimum wage when Democrats held majorities in both chambers of the Legislature in 2013. This year, if such a proposal makes it past a Republican majority in the Senate and to LePage’s desk, it’s likely to get the same treatment.

A minimum wage hike at the federal level could bring Maine’s minimum wage as high as $8.50. State law calls for the state level minimum wage to be replaced by the federal wage if it’s higher, but only up to $1 more than the current state rate, which is $7.50.

That leaves a minimum wage hike in Maine up to the federal government, or local governments. Portland and Bangor are considering municipal minimum wage hikes.

Prices aren’t equal from Bangor to Lewiston to Portland. The BEA price data also tracks prices at the local level, where discussions about raising the minimum wage are also moving ahead. A major concern in those discussions — in Portland and Bangor — has come over the regional economic impacts of having the wage floor set differently from one area to another.

Economist Arindrajit Dube, a leading proponent of local minimum wages, has argued in various forums against that concern. In a recent paper for the Brookings Institution’s Hamilton Project, he advocated the approach Portland Mayor Michael Brennan tried in pushing for a municipal minimum wage hike. That method would set the minimum wage at about half the local median income.

While such a move would mean a disparity between a local minimum wage and the state minimum, there’s already something of a difference in the minimum wage’s buying power in different parts of Maine: the minimum wage doesn’t go as far in Portland as it does in Bangor. And that wage in Bangor doesn’t go as far as it does in Lewiston.

A pre-tax week’s pay at the state minimum wage of $7.50 has a purchasing power of about $288.44 in the Portland area, $302.46 in the Bangor area and $306.81 around Lewiston-Auburn.

Within those metro areas, there are still finer levels of price differences, though the BEA data doesn’t get that granular. And it might be as far as the minimum wage discussion goes, too.

 



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