A $15 Minimum Wage Won’t Cut It
By: Johanna Tatlow
Tags: Economics, Politics, Money, Poverty, Economic Development

We should fight for localized living wages instead

Homeless man takes care of his cat in Philadelphia, USA. Photo by Zac Durant on Unsplash

Can you afford living in America? For more than half of this nation, the answer is “no.”

A little bit of this is due to the present pandemic. Since this started, homelessness has gone up. Lines for food pantries now routinely wrap around the block down the street. Since the initial dip in the spring, employment has come back up. The stock market has rebounded. Investors feel cheerful. But family finances are shaky for many and downright desperate for some.

People may have found jobs, but clearly, the jobs aren’t enough.

This year, I have sent money or groceries to two friends who couldn’t afford good food. They were both employed. Their employers just don’t pay them enough. And yes, of course, I checked in with them to see if we could do other things to boost their income. But we really shouldn’t have to be finding creative ways to make ends meet when someone is already gainfully employed.

Even a year ago, before the pandemic, at the height of a booming economy, 17% of Americans were struggling with all aspects of their financial lives. Before the pandemic hit, 12% of people responding to the US Financial Health Pulse survey said they had less than a week’s worth of money in their savings account.

It’s probably because they don’t have enough to save. Around half of Americans are paid less than $30K a year for 40 hours of work. The cheapest area in the US has a $35K cost of living. Even with overtime, side gigs, and tax returns, it’s hard for the average American to make ends meet.

Because the US minimum wage is way too low, all the other wages are depressed in keeping with the floor of the minimum wage. Plenty of people acknowledge this. The question becomes, what should the minimum wage be? $15 has been widely suggested and adopted by several cities. But is $15 enough?

Raising the minimum wage to $15 would raise the wage for 26.6% of the US workforce by an average of $3000 per year. Over 60% of those who would benefit currently work full time.

A $15 minimum wage would be great, but it isn’t nearly enough. I worry that fighting for that will handicap real progress.

Why? First, $15 is too low for many locations. For instance, to rent a low budget apartment in San Jose, you need to make over $20 an hour, as a single person, or close to $30 if you hope to find space for a family.

Second, the minimum wage is a hard benchmark to change. We’ve had our current minimum wage since 2009. If a new minimum wage is implemented, the current discussion involves raising it gradually until 2024. By then $15 will be worth even less. And the next bill to change the minimum wage will likely be delayed another 10 years.

By 2030, $15 won’t be enough for anyone to live on. Fighting for $15 sounds extreme because Americans are used to $7.25. But fighting for $15 is a waste of effort unless the bill includes measures that automatically update the minimum wage to meet inflation. Better yet, the minimum wage could be tied to the regional cost of living indexes.

$15 Is Already Too Low

A $15 minimum wage would leave a lot of people unable to pay their monthly bills. In rural Mississippi, the lowest-cost area of the United States, EPI estimates $17.17 as the basic wage needed if someone is to make ends meet for their family while working 40 hours a week. In Phoenix, AZ, that wage would be $20.16. In New York, NY, it would be $28.52.

Now, some might argue with those wages. They do seem high. And sure, a single person might be able to get by on less. But the minimum wage isn’t issued based on whether you are single or have a family. MIT has a living wage calculator that specifies how much a person would need to make based on their family status. Here’s how it looks for a few cities.

Wages for five cities, extracted from MIT’s living wage calculator

If the average minimum wage worker was an adult with no child, then a $15 minimum wage might be too high for Indianapolis, Charlotte, and Woodsville. However, the average minimum wage worker isn’t some unencumbered 22-year-old. Of workers earning less than $15 an hour right now, 73% are over the age of 25. Many have children. In fact, over 42% of children in this nation have a parent earning less than $15. Many times, single parents are making less than $15, trying to raise multiple kids on a single income.

Where should we set the living wage, then? At the level of 1 adult with no children? Or at the level that a two-income family would need? Or at the level that a single-parent household would need?

EPI’s estimates hit a mid-range between the amount needed by a dual-income family and a single parent. That seems fair. After all, a single parent is likely receiving some form of external child support (or should be).

Some people might argue that the minimum wage is for beginning workers, and so you only need to pay the lower end, somewhere between $10 and $15. But the people who currently receive wages below $15 are not beginning level workers. Unless we implement a tiered wage where employers are forced to compensate people based on the number of years they have been in the workforce, we need a minimum wage that allows workers to support full families.

(And no, the “market” does not automatically pay more experienced workers. I wish that were the case, but I’ve worked with too many clients stuck in minimum wage jobs for ten or twenty years.)

The higher wage also wouldn’t go to waste on young people. It would allow them to pay for college or pay off their student loans, save for a house, and save up for a wedding.

In fact, every living wage calculator I looked at assumes too few expenses. The MIT calculator of expenses is too low across all categories. It states expenses as the following:

Food (a modest budget that assumes you are making your own at home)

Childcare (at rates for a four-year-old, not for an infant)

Medical (insurance plus a few prescriptions, nothing major)

Housing (rent for a budget apartment, not a nice place)

Transportation (cost of a reasonable used car driven for a short commute)

An “Other” category for things like clothes and a low-cost cell phone plan.

Not included:

Retirement savings

Student loan payments

Major medical expenses, such as you might incur if you have diabetes

Cushion for catastrophes (car accidents, hurricanes, etc.)

If the majority of the US population is to be self-sufficient through old age and resilient in the face of life’s setbacks, then the expected wage needs to be a bit higher than the “living” wage. We need a wage that is high enough that fully employed people would not need the government “safety net” programs.

We Need to Tie Minimum Wage to Purchasing Power

Until the 1980s, the minimum wage was adjusted frequently. Since then, however, the minimum wage has stagnated. Instead of incremental growth that keeps up with inflation, the adjustments create odd jumps and hiccups in the labor market. Everyone readjusts. Employers set their wages a bit higher across the board. Then keep them there for as long as they can.

Employees marvel at their increased earning power. Then wonder the next year why they didn’t get a raise increase that kept up with inflation. Within five years, their purchasing power has returned to what it was before or less. They are no longer making enough to make ends meet. They start complaining again.

But no matter how much minimum wage earners complain, it’s hard for them to out lobby corporate interests. The minimum wage discussion is sure to cost elected officials a few donors. So the discussion gets punted down the road again. And again. And again. Until the minimum wage has become a worthless benchmark.

The simplest fix for this would be to tie minimum wages to purchasing power nationwide. Write a bill that says, “Minimum wage must be $17 per hour, for 2020, and must be adjusted each year by the Department of Labor to maintain equal purchasing power, according to the Consumer Price Index generated by the US Federal Reserve.” If Congress passed a bill like that, they would never have to pass another minimum wage bill again.

But, the simplest fix isn’t the best. Here’s why.

We Need to Tie Minimum Wage to Local Costs

Aerial view of San Francisco. Photo by Madhur Chadha on Unsplash

Right now, employers cluster to popular cities. San Jose is expensive because it is Silicon Valley’s neighborhood. Employers have bought up apartment blocks to rent to their own employees, just so that they can guarantee that employees have housing. It’s too crowded. People often commute in from over an hour away. But the companies still stay clustered there.

Why? Well, they can easily poach talent off of each other. The infrastructure they need is already in place. They are comfortable. You occasionally hear of a company getting fed up and moving out, but it’s an anomaly.

Other cities have become popular more recently. Charlotte, NC, where I live, has a boom with banks and FinTech. Because the number of jobs available is going up faster than the housing units, rent prices are shooting up. Property prices have increased by 7% over last year despite the fact that we are in a pandemic and in the middle of a major eviction crisis.

At the same time, “rust belt” cities have empty homes and rotting warehouses. Rural areas have depressed wages. Towns not two hours away from where I live used to be mill towns but now have no major employers. The difference in cost (and standard) of living by location in the US is stark. A single minimum wage does not do justice to that. It can’t.

Even when states set their own minimum wage, they are hesitant to deviate too much from the federal minimum wage. They fear it would discourage employers. For cities with thriving centers, keeping wages artificially low attracts business and tax revenue. By doing so, however, city and state leaders worsen the income inequality of the US by encouraging businesses to cluster in their already affluent locations.

What we need is a minimum wage that is based on the local costs of living. Say a company was looking for where it should relocate. The executive team surveys locations. It notices that in Woodsville, MS, it would only have to pay $15 per hour, but in San Jose, CA, it would have to pay $30. Why then, it would likely figure out a way to relocate to Woodsville.

Living wages in five cities. MIT Living Wage Calculator.

Woodsville wouldn’t have to offer any tax incentives or ease any environmental regulations. They would likely work with the employer on infrastructure, but the employer would probably be willing to foot part of the bill. Even if the employer had to do a bit of extra training of employees, it would be worth it, because the wage differential would pay for it.

Eventually, this might raise the standard of living and the cost of living in Woodsville. The next employer to look for a warehouse and manufacturing plant would look at the next town over — the one that still has lower costs.

It would create a self-correcting system. Raising the minimum wage in this way wouldn’t drive inflation that erases the boost in earned income. Companies would always be paying a living wage, and that families could always count on a fair income.

So Why Not?

Passing a bill that is this radical would require consensus in the House of Representatives, Congress, and the White House. It would also require substantial courage from Senators to stand up to corporate donors and lobbyists. We haven’t had that type of agreement or leadership courage in the last 10 years.

Implementing an indexed wage would also have its own complications. While the Federal Reserve has the data required to create a Cost of Living index and generate a living wage accordingly, they don’t actually do that right now. You will notice that my examples above are from MIT instead.

Then come the questions of which necessities must be included in the Cost of Living. For instance, are cell phones and internet considered essentials when calculating a basic budget? There are all sorts of fiddly details that economists and legislators could fight over in this.

But this is the fight that is worth having. This is the fight that will guarantee that hard work yields a life of dignity. Forget $15 an hour. Let’s fight for a living wage.