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Minimum Wage

“Let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.”
– President Obama, State of the Union Address

With these words a new policy direction was announced.  It’s not a small move, especially since it’s both the biggest effort to combat the Depression since the Stimulus Act and the biggest challenge to Republicans outside of the budget negotiations (which largely go nowhere).  But for many progressives a higher minimum wage is long overdue.  Even more important, linking it to a “living wage” sets a precedent that has not been a part of policy in most of my advancing lifetime.

How does this go down?  It’s a fight we haven’t seen for a while, so it’s hard to tell.  But it’s very popular and backed by solid research as a sound public policy.  If only it went even further …

minimumwageAs we’ve discussed previously in Barataria, there is a basic “overhead” cost of life in America which we call the “Poverty Line”.  It’s about $11.7k for a single person, $14.7k for a couple, and $22.8 for a mythical family of four.  The overhead cost naturally varies dramatically from place to place, given the actual cost of living – it’s much lower in Lancaster County, Pennsylvania, than it is in St Paul, Minnesota (as my parents keep telling me) and much higher in Miami, Florida (as I remember).

The basic idea is the same – we can easily define a basic overhead per household.  It varies by family size and type as well as location, but to pick a standard like the mythical family of four with one wage earner would give us a standard that would hold up over time, since 40 hours a week away from raising the kids is 40 hours to everyone.  A good number to go with is $22.8k per year.

Someone working 40 hours, or two adults working 20 hours each, would have to earn $10.96 to be able to do that.  Watch that number, it’ll come up again.  It’s a very good benchmark standard.

A minimum wage set that high would be a huge increase over today’s $7.25, but it has precedence.  If it had kept up with inflation since 1968, we’d be looking at $10.58 per hour now, which is not very different.  Those who are trying to decry a higher minimum wage have to remember the effects of inflation when they become nostalgic.

More to the point, using some kind of benchmark like this as a center of all policy is a very good approach for a more politically neutral system generally.  A flat tax with no deductions other than family size could use this point to create a much more progressive tax system than we have now – and if you use roughly double this number, or $11.4k per person per year as a flat 0% rate, a 19% rate on the remaining income would still produce all the federal tax we collect today at a substantially lower marginal rate on everyone.

In other words, tying all government policy, not just minimum wage, to real poverty line data has its benefits.

The common refrain against this is that minimum wages cost jobs, given that employers have to pay more for each employee.  First of all, this is far from accepted – and there is considerable evidence that a low minimum wage does not cost jobs at all, within reason.  At the very lowest end of the scale, Wal-Mart needs a certain number of people to open and that’s all there is to it.  Another common argument is that very few work 40 hours at minimum wage, but that’s a bit spurious – many people in that position have more than one part-time job, so their total hours is still around 40.  What we’re defining here is a minimum quality of life set at about 40 hours total – hit that target however you can.

Then again, the minimum wage is not what actual cost of an employee is.  As Barataria has railed constantly, the overhead per employee exceeds wages by 30-100% based on many factors, and probably averages 45-50%.  Wal-Mart does not pay its workers $7.25, it probably pays $9.42 or more already (at 30% overhead).  A good compromise with business is that we raise the minimum wage, work to lower employment overhead costs, and split the difference with businesses.  More jobs are almost certain to result, not fewer – even as most people get more money.

A living wage based standard as a fundamental tool of policy is a critical and useful step.  It would guide laws and tax codes that are based firmly in reality and harder to weasel out of.  Any problems with implementing this can be dealt with by other means because this is a good standard that we worth applying – if you work 40 hours you should be able to support a family of four.  Git ‘er done!

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18 thoughts on “Minimum Wage

  1. $7.25 is BS. I don’t know what you edit here but I can’t say it strong enough. No one can live on that and you might as well have no minimum wage as have it that low. It should be indexed to a real living wage standard and you’re right that’s something we should use as a minimum everywhere. People who work for a living should do it because it provides a living for them and their families.

    • You can say bullshit in the comments. 🙂 Yes, a basic principle that people who work should be able to get by is pretty basic – I hope we can enshrine it as a standard for our world.

  2. A basic standard does make sense. A single wage earner supporting a family of 4 does seem a bit arbitrary but it gives a lot of slack for people who can’t get 40 hours in a week. There are a lot and with day care and all that can be a problem. I read that at Wal-Mart and a lot of other retailers there are people who work nearly full-time who are on food stamps because their income is so low, the report said something like $10 billion a year subsidizes low wages. That is just not right. So the basic idea is a good one and I like your tax proposal being linked to the same thing too. What we have now seems really arbitrary and that is not good.
    Obama is only proposing $9 an hour isn’t he? That isn’t really a living wage from what I can tell, at least if you have to support children.

    • Yes, Obama is at $9 and that is a big leap. I should have noted that in the piece. It’s a lot better than $7.25 but we should make the case for a lot more – about double the increase he is proposing!
      I think a somewhat arbitrary standard is called for, yes, but once we agree on it we can go from there. So many things could be triggered by this standard, including benefits and so on. It would make a lot of sense.

  3. The idea sounds good but to put it on the back of employers is just wrong. Its not like they just have money sitting around doing nothing, they have their own families to take care of. Most employers are not rich at all but hard working people too. But your idea of reducing overhead per employee is good if you can make that work, just so it doesn’t all go into wage increases so that it can be used to create new jobs. But raising the cost of workers doesn’t get us there at all & I don’t care what study you show it has to make hiring more expensive so there will be less of it.

    • The thing is, if people working still qualify for public assistance we have a problem. I agree that we shouldn’t put public policy on the backs of small employers, but a reasonable threshold is justified. There is no reason that we should use public money to subsidize retail, which is essentially what we are doing now. Work should be encouraged, and if the pay is really low and doesn’t get you off food stamps then what is the point of it?
      I do want to make this part of a trade-off. Lowering overhead is one thing, but making sure that small biz has the appropriate breaks to be able to fund this is quite reasonable, IMHO. I think there are ways to make this happen.

  4. In the early 80’s I was earning 50 to 75% more than the minimum wage. I had a sales/operations tag and luckily I was able to get my work done in 20 hours but it took 6 days a week. It would have been hard to raise a family on that as the health benefits were low but it was in a lower cost rural area so costs were low and some of that was spent on tuition.
    I did ok the first 30 years of my career. I was able to work outdoors, go to college when I wanted, work part time, even raise a family as I had good benefits and my wife had a great job (70K with great benefits, alas she quit and went into the very low pay non-profit sector). After technology, private equity and lack of foresight took my job along with a thousand others at the Startribune, hard times hit in 2008/9. It is vastly different working for $12/hr with low benefits than it is working for $18/hour with very good benefits.
    All this time of my good fortune from 1990 to 2008 I wondered how those below the median made it. I still don’t know even though I now have a lot more personal experience (even self done car repair with 200K honda accords has expense). I think a lot don’t make it and working extra hours that involves physical labor involves increased risks like car accidents and sprained knees. I was always pretty humble (lack of confidence and a real trade) but now I’ve also been humbled. Still escaping into books and movies when I can. Wish we had a democratic house of representatives.

    • Dan, thank you. Perhaps I should write more about how I’ve had to make it through lean times, although I said a lot a few years ago in the “On the Margin” series (on the right). I think it is important for those of us who are on the edge to share our stories and remove the stigma attached to it – it seems to me like a first step towards organizing and being recognized.
      You are right – many people burn themselves out quite young just trying to get by. It’s a huge problem as they get to my age (47), still many years from retirement.
      How do we make it? Sometimes, it’s a mystery. Sometimes it takes help. I like to joke that my financial adviser is Blanche duBois (“I have always depended on the kindness of strangers.”). But it does seem to work out, at least mostly.
      Thank you again, we all need to talk about this a lot more.

  5. Erik, I thinked you touched on something very important when you (may have) “coined” the phrase “overhead per household/family”. I have read innumerous articles and it has never quite so elegantly or inelegantly been put that way. Sometimes it seems that such frank talk is almost taboo. It often gets shut down or shouted over and then the parties retreat to the caves and tribes. Then we end up fighting within our tribe or being tribal and thats gets us nowhere.
    Then I sometimes always constantly debate within myself and occasionally share with close intimate others these ideas. Too be honest I am still not sure if the enormous expense financial and otherwise we spend on cellphone mobile technology is worth it. Too be honest I don’t carry a cellphone and sometimes it probably puts me at a disadvantage. I think my son and wife use their cell appropriately and minimally. But I think my teen daughter and teen girls in general have had their lives and late childhood ruined by it. Stephen King (sometimes a great novelist in my opinion) touched on this in his major work “November 22, !963”.
    Some of this overhead is built in and I don’t know if there is much we can do to change it and doing so requires great courage and can cause great disruption. My Dad having a pacemaker installed at age 85. A question mark but he does have a moderately high good quality of life albeit with some lonliness and attendant poor behavior (clean hoarding sanitary but sometimes we have to sell stuff off, give away or toss to empty garages). Menards gives away some stuff for free or very low cost and it seems to end up in my Dad’s garage.
    Sorry for being long winded here but I have touched upon electronic and medical technology (one of my elderly neighbors had advanced cancer and chose hospice early and I say good for him). THE Big thing though is still energy. Mostly car and household energy waste. My wife and I were lucky to have had the foresight and means to properly insulate our roof and walls. Consequently our house uses less energy than the average/median house our size. But there is so much more we could do. Better windows, less hot water usage, better refrigeration (we would have used the early Obama rebate but missed out on the lottery), better landscape (costly you can’t grow a tree in the driveway and building an inlaw hose in back would e costly and perhaps a building code struggle) , better eaves, better house design to encourage cross ventilation. Change in behavior regarding air conditioning (I’m not quilty but my/our family is). We also missed out on the car rebate/downsizing to a Honda Fit due to pinched finances. Also families are streched by the distance in this country due to the suburbs and job mobilty which can require flying. Like you said we can’t all move back to Lancaster Penn. Some of us live in MN, Florida and Philadelphia.

    • Thank you, and I am trying to “translate” important concepts out of policy-speak and into something that makes sense in the real world. Not only should that engage people, but it should keep the policy makers focused on what is important. The jargon is very killing – and at times I think that people are blindly applying whatever “their tribe” says is the right thing to do.
      But yes, what goes into that “overhead”? Is it really all unavoidable cost? The short answer is no, and I’d hate to have us define a standard best suited for a bleak hand-to-mouth existence. But people can do a lot to cut their own costs substantially. Fuel, and cars in general, is a huge one that we’re only scratching at (but there is great progress!). The latest tech like cell phones is another that is adding onto our perceived “overhead” – do we really need that?
      Much of this will change slowly. No, we can’t just buy a more fuel efficient car until the 1997 Ford Escort is really dead, and we can’t just up and move if we have a job where we are – besides, places with low cost of living are probably places with higher unemployment that drives that. But people will change their lives and they will move around.
      In the meantime, policy that acknowledges the overhead is about all we can do to make things reasonably “fair”. And we can keep talking about what that means.

  6. Erik, I reread your article from Feb. 1 and I tend to agree with you. This idea of keeping up is hard. It is really impacting my teenage daughter even though she has friends from financially struggling households usually headed by a single mother. We live in a middle class block in a rich neighborhood near the agricultural campus of the U of MN. People here tend to have very solid jobs with nearly lifelong tenure that sometimes can be taken for granted because it is the norm here. People like to read here we have Mccawber’s and a busy branch library. Also clothing seems somewhat modest and not much emphasis on big time athletic expenses altho a fair amount of time and money is spent on youth activities and rural recreation which can often involve something approximating a second home. The location is ideal minutes away from both downtowns where my wife and I seperately worked, with good frequent bus service.
    Where my son’s and daughter’s life is diverging is that my son’s friends and family were kinda anti-car at least in belief. My daughter ends up riding to school with a friend and she is pushing hard to use our old 1995 Honda accord . She is going to have an accident when she starts driving as she is a texting junkie like many girls. I think mobile communications companies should be sued billions of dollars for young lives lost. I think texting is nearly a big a threat as drinking. On a side note one of the reasons for the success in fighting AIDS in america was the public health recognition was that it was wasting young life (unlike strokes which tend to waste old lives).
    Anyways if we lived in a more perfect world I would be able to move closer to my new job which is 14 miles away without disrupting the connections we have made over the past 25 years. It won’t happen especially because I am in transportation where you are only as good as your last split second decision. Yes just as quarterbacks can prevent interceptions, interceptions do occur. Just like good drivers can prevent accidents but small accidents still occur and even $500 damage can cost one with employment at will. Thanks for your writing and time.

    • Thanks. I think the goal should be to get everyone to where they see money as a tool. Some don’t have enough of it to think that far ahead, some others have too much of it and see it as a way of keeping score. But the real ticket has to be that this is how we bring happiness to our lives. That takes some long-term planning and strategy, which I wish we’d teach more in schools. But we can talk about it as a people and fill in a lot of gaps. Far too much of popular culture is taken up with the keeping score view on money. As we enter a low-growth new economy that’s just poison.

  7. hey if you want another idea for an article write something about the 1989 yugoslavian economic crisis (severe) and its far reaching impact in the later decades. Then again there is the american election of 1876.

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