Expect heated debate over federal minimum wage

What is your biggest prediction for 2015?

I have been making economic and market predictions for the better part of two decades, and it gets more difficult each year. The reason is simple: we have access to so much information in our society, it is almost impossible to decide where to start.

In simpler times, folks wanted you to guess at the year-end level on the Dow Industrials, and that was about it. Today, I get questions on a whole host of intricate topics. Trust me, it isn’t terribly rewarding to give clients non-answers like: “I don’t know what the market price for linear low-density polyethylene will be. However, climatologists are predicting a heavy hurricane season in the Gulf, which will drive up natural gas prices, and, therefore, polyethylene in general. So prices will probably depend more on low-pressure systems off West Africa than on end consumer demand.”

With that said, my biggest prediction for the economy in 2015 has more to do with politics than anything else. I expect an apparently reinvigorated Barack Obama will push, and hard, for new Federal minimum wage legislation, which is currently stalled on Capitol Hill. This is the proverbial low-hanging fruit, because the Democrats need something to push the GOP into a corner and re-energize the party faithful after their shellacking in November.

Let’s face facts: by most measures, the U.S. economy heads into this calendar year the healthiest it has been in a very long time. The official unemployment rate has fallen below 6 percent. Corporate profits at the end of September were at all-time highs. The stock market had yet another good year in 2014. Inflation seems to be pretty well-contained, at least officially. The Federal budget deficit has been falling rapidly, and the economic reports have been coming in well ahead of most expectations.

So, politically, if not now, when?

Now, the real problem with a Federal minimum wage is geography. Our country is enormous, and wealth isn’t evenly distributed. For instance, according to the Bureau of Labor Statistics, the median hourly wage in the Montgomery metro area in May 2013 was $14.73. In New York, it was $20.80, and San Francisco’s was a $23.43. For grins, in rural areas in southwest Alabama, it was $12.84.

So, trying to apply a one size fits all minimum wage across the country is difficult. In San Francisco, an increase from $7.25 to even $15.00, as some advocates want, might not even move the needle. However, in Montgomery, and in rural sections of our state, such an increase would take the minimum wage above the median wage for all jobs, and probably crush the economy.

Therefore, the Administration would be wise to scrap its desired static number, currently $10.10/hour, and opt for an equation. For instance, the Federal minimum wage will be, say, the greater of the current $7.25 or 50 percent of the median hourly wage of all occupations in the state, as defined by the Bureau of Labor Statistics.

This means the Federal minimum wage would be $7.30 in Alabama, $9.36 in California, and $9.73 in New York. Confusing? Well, not as confusing as the rest of the tax code, and it isn’t as arbitrary as mandating $10.10 or $15.00 across the board.

However, I don’t think something as simple as this is likely to happen. There will just a lot of heated words and headlines, which is a safe prediction to make.

— John Norris is a Managing Director, and the Head of Wealth Management at Oakworth Capital Bank in Birmingham. He can be reached at john.norris@oakworthcapital.com.