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The passage of the Fair Minimum Wage Act of 2007 once again brought minimum wage laws to the forefront of American politics. The act raised the federal minimum wage from $5.15 to $7.25 per hour by July 2009.1 According to the U.S. Department of Labor [2007] as the Fair Minimum Wage act was being deliberated, half of the states had established minimum wages greater than the prior federal rate of $5.15 per hour, which had been in effect since September 1, 1997. Seven states had a minimum wage that exceeded $7.00 per hour, and nearly 150 separate urban areas had either minimum or "living wage rates" above the federal level.2 This tendency for state and local minimum wages to change between infrequent federal rate changes is not new, and neither is the debate about the merits of such legislation.
Typically, the stated goal of such minimum wage increases is to help low-wage-earning workers. However, whether minimum wages are an effective way to help low-wage workers afford the necessities of modern life, and whether they are the best policy for doing so, has been widely discussed in the economic literature. To be effective, the minimum wage rate logically would need to be enacted to reflect regional cost of living differences, since each cohort of workers, in each state or city, requires different funds to achieve this stated goal. Federal legislation, applied uniformly across the entire country, is not likely to reach this goal. However, as we will show, differences in state minimum wage levels are not attributable to differences in the cost of living.
Most of the states that have established minimum wages in excess of the federal level share two common characteristics. First, such states are relatively high cost of living areas. Second, voters in those states also tend to reflect more liberal political views on the proper role of government.3 Supporters of increasing the minimum wage generally have passed legislation at the state and even local level to bring their minimum wage in line with what they believe to be the cost of living factors affecting workers' lives (see, for example, The Center for Policy Alternatives [2007; and the Ballot Initiative Strategy Center (BISC) 2006]). For clarity, we label these...