The Minimum Wage and the Living Wage

by Blueberry T

For months, I’ve had it in mind to write a post about the right to work, as opposed to Right-to-Work laws, and the living wage. The trouble is that I got lost/buried in the topic and couldn’t get anywhere with it. Then, the other day, I saw that Governor Chris Christie – who portrays himself as a pragmatic centrist who represents the interests of his constituents – vetoed a bill that would have raised the minimum wage in New Jersey from $7.25 to $8.50 an hour now, and indexed the minimum wage to inflation thereafter. Wow - he cured my writer’s block!

Christie vetoed the bill despite the fact that 82% of New Jersey residents surveyed by Quinnipiac University, including 67% of Republicans, support increasing the minimum wage to $8.50/hr.  

In the interest of full disclosure, Christie sent the bill back to the legislature, saying he would accept a modified bill with an increase of a whopping 25 cents/hr in the minimum wage this year, and increases over the next three years to bring it up to $8.25/hr., but without inflation indexing. He used the excuse that increasing the minimum wage would threaten economic recovery. This is a common argument used to thwart efforts to raise the minimum wage, along with arguments that raising the minimum wage causes job losses.  Here is the conservative Heritage Foundation’s argument along those lines.  Here are articles from Bloomberg, Think Progress and LearnVest refuting these arguments and laying out the strong case for a raise in the minimum wage.

Now, let’s look at this.  Of course, this is an issue not just in New Jersey, but throughout America. For background, here is current information from the Department of Labor on the federal minimum wage law and how it is implemented. States can now enact their own minimum wage; currently the state of Washington has the highest minimum wage at $9.19/hr. Here is a clickable map showing the minimum wage in each state (you can scroll down to compare the data for each state) and a Q&A that covers exemptions and other issues. 

Today, the national minimum wage is $7.25/hour, which equates to $15,080/year for a full-time worker.  Adding insult to injury, minimum wage workers generally do not get health insurance or much else in the way of benefits.  The national minimum wage has fallen so far behind the pace of inflation that it now only provides 68% of the buying power that it had in 1968. According to Wikipedia, “The minimum wage had its highest purchasing value ever in 1968, when it was $1.60 per hour ($10.64 in 2012 dollars). From January 1981 to April 1990, the minimum wage was frozen at $3.35 per hour, then a record-setting wage freeze. From September 1, 1997 through July 23, 2007, the federal minimum wage remained constant at $5.15 per hour, breaking the old record.” In other words, since 1981 there have been two periods of almost a decade each during which the minimum wage did not increase at all. Even the highest minimum wage in the country currently, $9.19/hr, does not keep pace with inflation when compared to the 1968 wage.

Note this map is now out-of-date; I include it for the data on who earns minimum wage; also note the minimum wage did NOT rise to $8.25/hour in 2010 as estimated here.

The fact that the minimum wage is not indexed to inflation is a huge problem, because raising the minimum wage is always a political football and generally falls prey to legislative gridlock or conservative ideological purity tests. This is the case even though several studies indicate that people earning the minimum wage are likely to spend every dollar they earn, thus increasing consumer spending and stimulating the economy. Ironically, in the recent fiscal cliff compromise, the estate tax exemption was indexed to inflation. Got that? If you earn the minimum wage, you don’t get any adjustment each year, but if you are going to inherit more than $5 million, you are in luck not only because of your obvious wealth, but also because the amount not subject to the estate tax will now be increased each year - because it would have been some kind of unfair hardship otherwise, right? Talk about a tax code and economic system that favor the wealthy! If there is one single economic reform that is urgently needed, it is to index (minimum) wages to inflation.

But that is only part of the story.  Most importantly, the minimum wage is not enough to live on, almost anywhere in the country – and certainly a single value does not reflect variations in the cost of living throughout the country, in any case. In most areas, the minimum wage is closer to a poverty wage than a living wage. To help illustrate this, MIT has developed a living wage calculator that shows the wage needed to meet the actual cost of housing and other basic necessities in every city or town in the country.  It’s a tremendously helpful tool that also shows how much money is needed not only for a single adult, but for a 1-2 adults with 1-3 children.  It also shows the estimate for each expense category. 

What becomes immediately apparent, in looking at the MIT living wage calculator, is that not even a single person earning minimum wage can possibly come close to the living wage costs, anywhere in New Jersey (and most other places in America). Living wage is around $10/hr or more everywhere in the state. (Okay, I didn’t check every town, but the lowest living wage I found was close to $10/hr and most were much higher.) Even a couple with no children, both earning minimum wage, would fall short of the living wage. With children, forget it. Impossible. You’d have to work more than two full-time jobs.

In fact, the minimum wage is, in effect, a poverty wage for anyone with one child, and even lower than poverty level for someone with more than one child, as is the case for many single mothers, for example. The result is that there is little hope of ever getting out of poverty for many people consigned to the minimum wage scrapheap of the American economy. This is a far more important economic truth, and far more damaging to the economy and society as a whole, that the weak arguments about raising the minimum wage being detrimental to business. Governor Christie should have to confront these facts and address this issue, rather than basing such an important decision, which affects his constituents' lives so directly, on speculation and the wishes of self-interested businesses.

In this article by Robert Reich in Salon, he reports, among other things, that "almost a quarter of all jobs in America now pay wages below the poverty line for a family of four."  He notes that many of the jobs stemming from economic growth in the coming decade will be low wage. Not surprisingly, there is a strong correlation with the weakening of labor unions. 

Here is more information on the living wage from the Labor Center at UC Berkeley and the Living Wage Action Coalition. 

The irony is that if people made enough to meet their needs, so many of society’s problems would be lessened or resolved.  This lack of a living wage is a far bigger problem than the deficit, but gets far less attention than it deserves.  

UPDATE: Our friend and reader Nomad (Nomadic Joe) reminded us of the role that ACORN played in campaigning for a living wage; here is his post on the subject.  EbbtideMB pointed out the work that labor unions are doing to promote living wages; here is a resolution referring to living wage ordinances passed in  Michigan and elsewhere. The importance of labor unions in promoting the living wage is key, and the weakening of organized labor is such an important factor in wage stagnation.