Breaking Down the Minimum Wage

I’ve been thinking a lot lately about the minimum wage in the United States, which is seriously ridiculously low. And I thought, well, let’s turn lying in bed at night thinking about class war into a post, because that is how I roll.

Federal minimum wage in the United States right now is $7.25/hour. Some states have higher minimums. Some states have sneaky programs they use to create lower minimums, like low minimum wages for waitpersons based on the fact that they’re supposed to get tips, so it’s ok to pay them $2.15/hour.

If you work 40 hours per week, that’s $290. Let’s assume you work full time year-round, which you probably do. You’re taking home $15,080 before taxes. If you’re never sick, not even for a half day. For simplicity let’s say your taxable income is $6,580; that’s $15,080 minus the standard deduction for the head of household. Congratulations, you owe $658 in federal taxes! Your employer will helpfully take that out of your wages for you as the year goes on, so really you make $14,422/year, or around $1,200/month. Congratulations, you are officially above the poverty level! Go you. You’re still hovering in the range for some benefits, though, so that’s some consolation. If you can navigate the byzantine network of social services to figure out how to access them, at any rate.

Some potential benefits you may be able to obtain: Foodstamps to assist with buying food, partial housing subsidies, and government health care. As I say, benefits accessibility and amounts vary pretty radically depending on region, who is processing your application, and your own ability to work through the system. Getting benefits is seriously hard work, as anyone who has actually had to apply for them can tell you.

Thanks to the US Census, I can pull up some numbers on average housing costs, which range from $691/month in the Midwest to $958 in the West. If you’re a hypothetical person living in the West, you have $242 left every month after you have paid your rent. Maybe you lucked out and managed to access ‘affordable’ housing, which cannot exceed more than 30% of your monthly income. That leaves you with $840. You are extremely unlikely to be left with this much money.

You still need to pay for your utilities. Utility expenses vary by region (some are structured into rents). But let’s assume that you need heat, electricity, and phone, generally deemed necessities. Most utilities have programs for low income customers to cut costs, such as Universal Lifeline Service from the phone company. The amount you spend on basic utilities, those the government thinks are critical to your survival, can still be high, especially if you live somewhere with cold winters and hot summers.

White Fence Index tells me average utilities in Los Angeles hover around $193 month, and that’s including high speed Internet and television service. Some people may consider Internet and phone optional. I say that’s up for debate. Internet is a necessity for many people to complete assignments for work and school, and it’s also a quality of life issue. People interested in poverty policing often point to things like Internet and cable as evidence that poor people are living it up, because poor folks are apparently supposed to be miserable all the time and thus cannot enjoy entertainment.

I would also note that national averages for utilities get much higher in other places, closer to $350, although they may be offset by lower rental rates. But let’s say, for the sake of argument, that you’re paying $200/month for utilities, leaving you with $640.

Transportation. Chances are very strong that you need access to public transit to get to work or school, or you need a car. Public transit costs are, again, highly variable. When I was living in San Francisco, I paid $45/month for a fast pass that allowed me to move through most of San Francisco. Other people may spend much more if they have to commute between the East Bay and San Francisco, a common issue for people who don’t make very much money and need to take affordable housing where they can find it. Costs of car ownership, including insurance, registration, petrol, and maintenance, can be much higher. Let’s say $100/month for transport, which might be unusually low or high depending on a lot of factors. Now you’re down to $540.

Your foodstamp allowance is $200, the maximum. According to USDA statistics, that should be just about enough to cover your food needs on a ‘moderate’ food budget. Let’s assume the USDA is full of crap and you end up needing to spend $10 a week out of your own earnings to cover food costs. Now you’re down to $500.

You receive health care through a government program, but are still responsible for copays and services the government will not cover. The actual cost to patients can vary considerably depending on what they are in treatment for. I’ll call it $100/month for miscellaneous health care expenses, which, again, may be high or low depending on where you are. I’m also averaging out here, assuming that perhaps one month you don’t spend anything, and another you need a dental filling that isn’t covered. We’ll talk a little bit more about the problem with averaging in a moment. Now you have $400.

Do you have pets? How much do they cost a month? Do you do anything, ever, other than going to work or sitting at home? How much does that cost? Pretty soon, your $400 is dwindling to nothing. This is a big problem, because it means you cannot save money. While the government claims to encourage thrift and savings, I’d argue they are actually discouraged by the structure of a number of government policies.

Do you pay child support? Are you trying to pay off student loans or credit card debt incurred while living on not enough money?

There’s also this issue of averaging that I talked a little bit about in the econopack problem. Which is, namely, averages are great, but you have to go with the money you have now. Paying $100/month for something averaged out might not sound like a big deal, but it really means you need $1,200 up front to pay for that thing at some point. It’s unlikely you are going to have that when you are living paycheque to paycheque each month and have limited opportunities to put money by ‘for a rainy day,’ as you are often admonished to do.

If you cannot save money, how do you plan to pay for unexpected and critical expenses? These might vary from a deposit on a new place when you’re forced to move to sudden car repairs. And how are you supposed to save for the American Dream of home ownership, where you will need at least a 3% down payment for an FHA loan, and 20% for a standard loan?