How One UMass Economist Would Set A Boston Area Minimum Wage

Gov. Deval Patrick signed legislation last month giving Massachusetts the highest state minimum wage in the nation — $11 per hour by 2017.

So while the issue is largely off the table here for now, the minimum wage debate goes on as municipalities across the country continue to experiment with pay floors above and beyond state laws.

Enter a recent policy memo from one University of Massachusetts Amherst economist.

The gist of Arin Dube’s proposals for The Hamilton Project is that the minimum wage should be tied to certain local market conditions. He offers two options: one, pegging the wage floor to half the median wage; or two, tying it to the cost of living in that particular location.

Under the first option — which he notes has both international and historical American precedents — Massachusetts would have a much higher minimum wage, and the highest in the nation: $12.45 an hour. (That’s compared to Mississippi and Arkansas at the other end of the spectrum, which would be $7.97 per hour.) Option two, the cost of living, would be somewhat lower in Massachusetts; it’d be $10.45 an hour.

Dube goes further, however, by calculating minimum wage guidelines for the country’s 20 biggest metro areas. The Boston metro — a geographic region that encompasses parts of southern New Hampshire — would have a pay floor of $12.85 an hour, under the median wage option, behind just Washington, D.C., and San Francisco. Under Dube’s cost-of-living calculation, the Boston area’s minimum wage would be $10.87 per hour.

In an interview, Dube expanded on his proposals, discussing the importance of some municipalities coordinating their minimum wages regionally, and why he’s not calling for all high-wage cities and towns to set individual pay floors significantly above the state. He used Amherst as an example.

“I don’t think that makes a lot of sense, given the small geographic size and the ease of substitution across the border between, say, Amherst and adjacent towns,” Dube said. “So I think this is something that’s best thought of as a regional wage-setting for fairly large cities and metro areas, and not small towns.”

He then cited California looking at an “urban differential” in crafting its statewide minimum wage.

“You don’t want to have 100 different policies, but you probably want to have more than one,” Dube said. “So somewhere in there is … the sweet spot.”

The UMass economist said any significant wage hike should be raised in “modest increments.” He was also cautious to say he’s offering guidelines, rather than commenting directly on specific laws, like Massachusetts’ new one.

And in his memo he outlines a preemptive rebuttal to the minimum wages he’s calculating.

Citing other research, he writes that “the costs [of the proposed hikes], such as negative employment effects, are expected to be minimal.”

He adds: “While restaurant prices will see likely increases from minimum wage increases, the overall price level is unlikely to be noticeably affected by minimum wage hikes.”

In the follow-up interview, Dube said any tradeoff with a higher wage floor is “a choice voters have to make,” in the form of referenda or their elected officials' votes.

Given his policy memo, Dube is watching closely as cities like Seattle, San Francisco and Chicago “push the envelope.”

“I think it’ll be interesting to see what type of, kinda, patchwork of policies we have in a few years time,” he said.

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