The Living Wage Gap

Current State of the Minimum Wage

While employers, employees, and market forces determine wages, especially those of managers, there is a minimum wage set by the federal or state governments. If states have not set their own standards, the federal minimum wage is set at $7.25 an hour. There has been a lot of talk about raising the minimum wage to $15 an hour, but some people argue that this is too high; it might be too much for a teenager scooping ice cream as a summer job, but the conversation changes when we think about a single parent trying to support their children. Additionally, if the minimum wage goes up, all other salaries will rise accordingly to be greater than minimum wage. Some states have adjusted their minimum wage because they know the wage needed to live a decent life is greater, but it is rarely quite high enough.

 

Disparities by Region

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Minimum wage is supposed to be adjusted to provide appropriate wages based on the cost of living. However, as we looked up the minimum wage vs living wage in 10 different cities and suburbs, only Benton, WA offered a minimum wage which would cover living wage. The living wage is calculated based on relatively comfortable living for all typical expenses, including food, child care, health care, housing, transportation,  taxes, and miscellaneous other needs. This initial graph only shows the living wage, displayed in hourly wages, for one single adult. However, there are many people who are supporting more than just themselves on the one minimum wage, yet it isn’t adjusted for those needs.

Additionally, we noted that minimum wage is adjusted for the cost of living in different states. Washington state has a very generous minimum wage, coming in at $11.50 an hour, with the typical work week at a full time job being 40 hours. This would cover a typical single adult living in a quiet town like Benton, but it would not cover the inflated costs of living in a city like Seattle. However, minimum wage is not adjusted by city or town, as people often work in a slightly different place than they live. We noticed that across the board, there are bigger disparities in the wage gap in cities than in suburbs or rural areas, as housing especially is more expensive in high density areas. We noted a huge difference in the gap between Manhattan and Monroe County, NY; housing in the NYC area for one adult costs $14,542 annually, while it only costs $7,500 in Monroe County, even though both single adults could be making the same minimum wage!

Who makes this minimum wage? And, who are they trying to support?

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One of the main political arguments made in favor of keeping the minimum wage low is that a minimum wage job is never a full time or permanent job. The people who typically make these arguments are college educated, well-paid government workers, so they can’t imagine making such a low wage. They picture minimum wages going to a teenager trying to earn some spending money or someone right out of college working part time as they go on interviews or prepare for graduate school. However, there are many adults working full time as they care for an entire family, and then minimum wage is certainly not enough. Even though $11.50 may be enough for a single adult to live on in Benton, Washington, it doesn’t cover them if they are trying to raise kids with the other parent as a caretaker, or especially if they are raising kids alone and have to pay for childcare. The visual above explains how the gap between minimum and living wages increases as one wage covers an entire family and increases further when there is a need for child care.

The Bureau of Labor Statistics found that about half of all minimum wage workers were under 25; so, politicians may assume that this majority of workers can survive just fine with such low wages. However, this still means that half of minimum wage workers are over 25, and they may be trying to begin a career and make a full salary. Of all employed people over 25, 3% make minimum wage rates or less, which turns out to be a lot of people making unlivable salaries despite their hard work. Increasingly, older Americans are making up greater percentages of those making minimum wages, with great increases seen even in the past 30 years. Additionally, women were disproportionately making the minimum wage as their salary as compared to men; some of these women are left caring for children on their own. In fact, 27 percent of low wage workers are parents, and their children would have opportunities for better lives if their parents were able to make more than minimum wage. The average minimum wage worker and parent brings home about half of total household income, and a raise in the minimum wage would mean these earners could be responsible for closer to 60 percent of total household income.

Obtaining more education certainly helps one’s prospects of making more than minimum wage. However, with the stresses on those in poverty during their childhood years and the rising prices of college, getting a good education is not as easy as it should be given the consequences. About 4 percent of those without a high school diploma earned minimum wage as they began their careers, compared to about only 2 percent who had a high school diploma. Only 1 percent of college graduates were stuck earning the minimum wage, as they are likely to be more competitive when trying to find better jobs or quickly earn promotions. The BLS also found that a higher percent of workers made at or below minimum wage in the South (Kentucky, Mississippi, Tennessee, South Carolina, Louisiana, and Virginia); even though these states generally offer lower minimum wages, it is harder for workers to find wages above it.

What does this minimum wage cover?

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These pie charts divide up and show the different elements of the living wage. Every expense increases when two children are added to the mix, and the category of childcare suddenly appears. In fact, childcare is the second largest sector, right after housing, when children are considered. The gap in needs between the cost of living for one adult when compared to one adult and two children in Chicago is over $35,000, which is more than the needs of the one adult to begin with. So, we begin to understand why minimum wage is so impractical when we consider an adult living with or responsible for anyone else.

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The wage gap for a single adult working and living in Chicago is significant, with the minimum wage only covering about 63% of living expenses. When most people think of minimum wage, they think of a kid scooping ice cream over the summer that really doesn’t need $15 per hour. However, they don’t think about the single adult that is attempting to actually live off of this wage. Furthermore, it is hardly ever considered that there are adults that are trying to raise a family off of a single minimum wage; this feat is nearly impossible, with the minimum wage only covering about 27% of expenses. These wage gaps, especially for adults with (two) children, are immense.

Possible Solutions — Looking to the Future

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Recently, there has been a whole lot of talk about raising the minimum wage to $15. One of the main economic arguments against this is that it would mess with the natural movements of the economy and supply and demand. However, it would guarantee that those who need the money would be able to get it and wouldn’t be crowded out of the market by those willing and able to work for less. Additionally, even the proponents of raising the minimum wage generally acknowledge that practically doubling the minimum wage instantly is not realistic. Washington state already has one of the highest minimum wages, and they are on schedule to hit $15 after gradual increases. In 2019, minimum wage will be $12, hitting $13.50 the following year. In addition, we have evidence of successful higher minimum wages in other countries, and there have been no previous riots or negative effects on the job market. French President Macron just announced a raise for all minimum wage workers, throughout the country, to be enacted. While citizens are unhappy with the slow economic growth, they were demanding a raise in minimum wages, as they care more about being able to feed and protect their families than the far-off future for the country’s prosperity.

Back in America, one strategy met with great success so far has been providing an Earned Income Tax Credit (EIC). The EIC is a benefit for low and moderate income earners, either lowering the amount of taxes owed or potentially providing a tax refund. This only helps those who need the money most, as there is a process to qualify and a threshold that must be met in order to receive the credit. This has been a fairly popular measure so far, as it has led to relatively small impacts on the economy as a whole while providing substantial help to individuals. However, this alone isn’t quite enough to cover the entire gap in needs and wages, so we still continue to look for additional solutions.

Another proposed solution is to provide a Universal Basic Income, or a period cash payment provided to all people on the individual level, regardless of means or work requirements. It would allow individuals to spend the money on whatever they feel is missing or needed most, as opposed to previous programs specifically providing health care through Medicaid or distributing food stamps. Additionally, since it will be paid to individuals, not to households, those living with more people will receive more of this income. However, there are great differences in the ideas about the amount of the provision or the funding for it. There are competing ideas for a full basic income versus a partial basic income, but some sort of assistance would definitely mean that people would be less likely to end up in poverty. As unemployment fluctuates and no other solutions seem to be in sight, this idea becomes more appealing; it is not yet implemented, though.

While these all have great potential, the solution for raising minimum wage only goes to a certain point. There is really no way to increase the minimum wage enough to support an adult and two children sufficiently. If it truly costs around $63,000 per year to support a family, then no minimum wage could really ever be sufficient. So, what can be done? There needs to be a way to help get these people out of minimum wage jobs and into positions higher up in the workforce. Minimum wage jobs are designed to be entry level positions, not careers. There needs be a program to help minimum wage workers, particularly those trying to support a family, to receive a higher education so that they can move on from minimum wage jobs. For example, any worker who is employed in a company for five years would be given a grant to go to community college so that they would be ready for a promotion or a brighter career in the future. Then, minimum wage would be reserved for teenagers, those working part time, or those between jobs as it was meant to be.

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