Since the recession, there has been a transition of jobs in the labour force. Most people went from holding average middle-class jobs to working low-income ones. Most of the jobs created since the economic issues in America made headlines, were typically in the lowest paying fields. This displacement, of the middle-class, means a multitude of Americans now lives on minimum wage.
This means that for many workers, they are living off a base pay of $7.25 an hour. In fact, the amount of people making minimum wage or less surged from 1.7 million in 2007 to 3.6 million in 2012. Due to inflation, minimum wage has fallen behind the cost of living.
In the President’s State of the Union address, earlier this year, he called for an increase in the minimum wage by over two dollars. Obama stated, “Tonight, let’s declare that, in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9 an hour.” This would push the average pay for those working minimum wage, closer the amount it should be, considering inflation ($10.55).
Whether the amount is $7.25 or $9.00, it is clear that the American low-income worker, which is a larger percentage of those employed in the country, are making under the appropriate amount for the cost of living. With gas, rent and prices of milk rising, how are workers affording the things they need in today’s economic situation? What are some of the facts people should know about minimum wage. Such information is especially worthy since it’s a topic that affects such a large percentage of the country?
To ask, fruitfully, whether it is possible to get by on minimum wage, it is important to know all of the specifics about the situation, and then through that, we can properly engage the question.
Minimum wage was established by the US government through the Fair Labor Standards Act, which was the first time employers were required by law to pay overtime for certain jobs, in 1938. Minimum wage at this time was $0.25 an hour, which is about four dollars an hour by today’s standards. It was the second most influential piece of Roosevelt’s New Deal, after the creation of Social Security.
The Fair Labor Standards Act, since then, has been amended twice, and the minimum wage steadily increasing every few years. However, as Obama noted, the minimum wage has not been able to keep up with inflation.
Under strict federal authority, the federal minimum wage applied to every state in order to coordinate commerce between states. Yet many states have passed their own laws in order to raise wage about the federal level.
Nineteen states have requirements that push the minimum wage higher than $7.25, with eight states having a minimum wage higher than $8.00 an hour. The highest is Washington with a minimum wage of $9.19, with Oregon and Vermont close behind ($8.95 and $8.60, respectively). Effective in 2016, California will have the highest minimum wage at $10.00.
Five states have no laws of their own, all of them in the south. Arkansas and Wyoming, in fact, have a minimum wage on the books that is lower than the federal level.
Minimum Wage varies through states but the Federal minimum is necessary to keep the country at around the same level of pay. However, due to the recent passing of California’s wage increase, it shows that cost of living per state is different and that State control of wage increases is necessary to coordinate how low income members are living.
As some may know, recent strikes by fast food workers in the US have been happening in order to propose the minimum wage move to $15.00 an hour. This has caused many third party groups to look into how the handling of minimum wage, globally.
The “Economist’s Big Mac Index” is “a lighthearted guide to whether currencies are at their ‘correct’ level. The book used “the theory of purchasing-power parity (PPP), [which is] the notion that in the long run exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services.” Groups such as ConvergeEx Group have made a list of the top twenty countries on the Index that have a minimum wage.
Globally, the US ranks seven on the highest minimum wage basis, so it ranks somewhere in the middle; Americans get less than a dollar than Japan and about a dollar more than low income workers in Spain. The United Kingdom, whose minimum wage is $9.83 per hour, is home to a recent report by the Equality Trust, in “Huffington Post,” that states a minimum wage worker would have to work for 375 years to reach the annual pay of the average British CEO. Australia has the largest mandated hourly pay, with $16.88 an hour.
At the other end of things, the lowest minimum wage is Sierra Leone, where workers receive about $0.03 an hour. Minimum Wage workers in India receive only $0.28 an hour and low-income workers in China get $0.88 an hour.
Globally, then, the amount that minimum wage workers in the United States receive is not the best they could get compared to Australia and France, but is clearly worlds away from the base pay in countries such as India and Sierra Leone.
Interestingly, Germany and Italy currently do not have a national minimum wage. In certain sectors, which have a strong bond between labor unions and employers, a basic minimum wage exists, but, nationally, goes acknowledged. Recently though, German Chancellor Angel Merkel has been voicing the issue publicly. She says there are a number of Germans who work full-time and have to apply for welfare to meet their needs. Those in Germany’s government along with employers and workers are currently disputing the effects a minimum wage would have in the country, with two of the major political parties demanding the blanket wage be at $11.40 an hour.
According to the Bureau of Labor Statistics, 4.4 million earned at the federal minimum or less, with jobs involving tips or commissions exempted, in 2010.
A little more than half of the 4.4 million were workers under 25, such as teenagers and college students with summer or part time jobs. Those that work in the service industry for instance restaurant workers or those at hotels or resorts make for most of the minimum wage jobs in the country. Employers in the “leisure and hospitality” realm have the highest percentage of low-income workers, measuring in at 23 percent. The US States with the highest percentages of minimum wage hourly workers are West Virginia, Alabama, Mississippi and Texas.
Earners of minimum wage make up only a small amount of the overall American economy. Workers paid hourly, comprise about 4 percent of minimum wage earners. Yet 4.4 million is still are large amount of Americans who are making under the cost of living and the number has grown since the last survey from the Bureau of Labor Statistics and overall it still is about three million more people earning minimum wage than there were six years ago.
The departing chair of the Council of Economic Advisers, Alan B. Kreuger, told the New York Times that raising the minimum wage would help to decrease “the rise in inequality we’ve seen over the last twenty years.” The idea that raising the minimum wage would benefit the social, political and economic spectrum of the United States seems to make sense, but many people that oppose it.
Who are these people? Why do they think this way?
Politicians who lean to the more conservative side of the spectrum, along with business lobbying groups are firmly against raising the minimum wage.
Conservatives and economists believe that by raising the cost to employ workers, you are in fact reducing the amount of workers. House speaker, John A. Boehner, in the same New York Times article, said, “When you take away the first couple of rungs on the economic ladder, you make it harder for people to get on.” Earlier this year, Democrats in Congress put forth a bill to raise the minimum wage to $10.00 an hour that the House majority did not support.
This supports the idea that increasing wages would force employers to reduce the amount of jobs and the amount of hours attainable to minimum wage employees. The idea of “disemployment” caused by a higher minimum wage is sound, especially for those that believe government focus should be on those that have “no wage” jobs as opposed to those that have low wage jobs.
Those that are opposed to raising the minimum wage believe the job market is already too risky, yet for those that are for it the idea of losing some jobs to benefit the majority of low-income Americans is worth the risk.
Studies conducted in states where the minimum wage increases usually find that businesses do not respond, directly, by reducing their workforce because this reduced turnover.
With so many of Americans making just about minimum wage, above slightly and in some cases, below, the question is this: is living on minimum wage possible. The annual salary for those that make an hourly wage of $7.25 dollars an hour is $15,080. That is above the government’s poverty threshold of $11,945 for a single person in 2012.
For those working a job that involves tipping, the minimum wage is $2.13 an hour. This works based on the idea that the amount you make in tips will account for the difference. However, in some cases, this doesn’t apply, and many restaurants and other services don’t account for the difference. For those workers that have families, the poverty threshold is $23,283 annually. Technically, that means a family must have two people working full time to keep the family out of poverty.
Of course, none of this factors in expenses, or the fact that to keep yourself above the poverty line you must be working full time. Many employers of low-income jobs keep their employees working a variety of hours, meaning that very rarely is a holder of a minimum wage job getting 40 hours a week, 52 weeks a year. This accounts for many workers needing to work two jobs and, in many cases, applying for some type of welfare benefits.
Living on minimum wage is possible, if workers are willing to sacrifice and stick to an austere budget. Absolute necessities, for the average minimum wage employee, include rent, utilities, food, and car associated payments (gas, insurance). If children are involved, other factors must also weigh in, such as childcare, school costs and so forth.
Let’s say you are making a quarter above the minimum wage and you work 80 hours per check, this is not the case for many Americans, you would get $924 a month. That average cost for your necessities would factor in at over $1000 a month, approximately.
How do people afford to live off minimum wage? There really is no science to it. A strict budget works, but calls for sacrifices, which can explain why many Americans face some type of debt problems. Many pay for items using credit or by applying for a variety of welfare programs like food stamps or assisted living. For many people, taking a second job is extremely necessary to make ends meet, and seeking the assistance of services like National Debt Relief, during financial hardships, is both rewarding and easing of stress.
With the cost of living rising, the answer to the question is simply you cannot live off minimum wage if it is $7.25 an hour, but people find a way to survive.
Looking at the cost of living and inflation, a higher minimum wage would fit the increases it’s had over the last seventy years since its creation. In such a hard-pressed economic environment, it will be quite some time until those that work low-income jobs are realistically above the poverty line.
Dave Landry Jr. is a business and finance blogger who also has interest in history and economics.
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