Why the US minimum wage system is well-designed to handle the country’s economic diversity

Earlier this year, the Biden administration withdrew an increase of the federal minimum wage to $15 from its COVID-19 relief bill. But to what extent should the federal government be setting a one size fits all minimum wage policy for the US? In new research, Andrew Simon and Matthew Wilson evaluate the US’ hybrid minimum wage system which allows states to set rates higher than the current $7.25 federal minimum. They find that the current system balances the trade-offs between federal and local minimum wage setting by allowing for differing economic conditions across the states.