“The [working] poor you will always have with you”: more on minimum and “living” wages

Last updated on: April 15, 2015 at 8:28 am by Jane the Actuary

“The [working] poor you will always have with you”: more on minimum and “living” wages 2015-04-15T08:28:57-06:00 Jane the Actuary

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I’m still mulling over the issues I worked through in my prior post on the minimum wage, living wage, and welfare benefits (and, yes, I need catchier titles).

Here’s the trouble: when you look at living wages, as calculated, for example, with the calculator at MIT, the hourly wages they calculate as necessary to support a family are not just a modest amount above minimum wage; they are so much higher that it’s hard to fathom someone making the case that these wages should be paid to all workers, regardless of skill (and this is now old data, dating to 2010). For Cook County, Illinois, for a single mother with two children, they calculate an income of $25.50/hour as required to provide for a family’s basic needs without requiring any government subsidies. For comparison, a single adult is determined to require $10.50; alternatedly, in Vermillion County, the figures are $7.50 for a single adult, but still $22.50 for a mom with two kids. At any rate, the single adult wage rates fit in pretty well with my opinion that “income necessary for a single adult to live with a basic living standard” ought to be the basis for setting the minimum wage — and considering that I do think that the government does have a role in health-care provision, a la Vouchercare.

Here’s their methodology (following the links from the “about” section of the calculator): they assume the low-cost food plan (second-lowest, with a higher cost than the “thrifty” plan); they assume that child care costs are based on in-home daycare rather than childcare centers; healthcare out-of-pocket costs and employee contributions assuming that the family is covered by the employer; average rent for a two-bedroom apartment for a family with children; transportation costs based on per-mile estimated costs for a vehicle, and so on. Some of these elements are reasonable — they assume no eating out, for instance; others less so — assuming average transportation and housing costs rather than economizing in this area. And it seems to me that when I last looked at this there were other quirks in methodology: adding in an amount for “savings,” for instance, but I imagine I must have been looking at a different living wage study.

So what do you do with this? You simply can’t bump up the minimum wage to these levels. Even the $15 minimum wage being promoted would radically change the economy. I’ll admit that I don’t have the time to research the various studies on this topic, but it’s clear that promoters of this boost imagine that the costs will be funded simply by dropping the wages of CEOs and other fat-cat executives, but the reality would be quite different. Employers will automate or raise prices — and when a Big Mac costs $20, McDonalds will sell a lot fewer Big Macs. (I’m not joking about the $20 — that’s what my husband paid, not for a Big Mac but a salad at McDonalds in Switzerland on a business trip.) The indulgence of having a lawn service will be indulged-in by a lot fewer people. And so on.

(And don’t tell me that Australia’s experience proves you can have a high minimum wage with no ill effects. They have training wages for teens, for one, and, in general, they have their own issues.)

And how radical an impact would a $15/hr wage have? See this old post on typical wages in Seattle. $15/hr affects many, many occupations; workers in that spectrum from $8 to $15 would expect that the same ranges would be preserved, and those above $15 would expect the same delta as well.

Second issue: if we define “living wage” as “that pay which is sufficient for a family (e.g., single mom with kids) to live without any government assistance,” it’s not only a rather unrealistic figure, but a moving target as well.

The New York Times article linked to in my prior post, and multiple similar articles I’ve seen previously, identify the working poor using Medicaid as a marker of employers “freeloading” off taxpayers. But consider that the ACA increased the number of working poor using Medicaid, because it increased eligibility to 133% of poverty and opened up to all, not just single moms. Did employers become any more freeloader-y when Medicaid eligibility increased?

Taking this a step further, everyone earning up to 400% of poverty gets a subsidy in the exchanges. Are all their employers “freeloaders” too? What if we moved to a single-payer universal healthcare system?

What’s more, so far as I understand, the similar increases in the number of working poor using food stamps is not a marker of employers increasing the degree to which they unfairly underpay their employees. Can an employer really be held responsible for the increasing numbers of single mothers? What’s more, it’s my understanding that SNAP eligibility has been loosened considerably in recent years; the “trick” of a state providing $1 in heating assistance for large numbers of families to put them on food stamp rolls (which is funded by the feds, not the states) is fairly well-known at this point, and it’s my impression (though unresearched) that eligibility has been broadened in other ways as well. What’s more, there have been substantial efforts to “recruit” more food stamp participants, with employees being paid for each new sign-up, each new individual who had been persuaded that signing up is not freeloading.

Fundamentally, it’s a positive thing to provide welfare benefits to the working poor. Yes, it would be nice if everyone had a job that provided for their family, but it’s just not an option, and, given that reality, it is far better to structure the benefits we provide to the poor — food stamps, Section 8, health care, the whole package — so that they phase out gradually rather than with cliffs.

‘kay?

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