An activist wears a “Fight For $ 15” T-shirt at a press conference before the vote on the Raise the Wage Act at the US Capitol on July 18, 2019.
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A minimum wage of $ 15 could become a reality in the US
While millions would receive a raise from a higher national wage floor, many workers would still not be able to be paid a “living wage” – the wage a person or family needs to cover their basic costs.
This is especially true for families, largely due to the higher cost of living such as childcare compared to single adults.
Even with an increase to $ 15 an hour, a typical family of four in no state could afford the basics. This was found in a CNBC cost of living analysis compiled by researchers at the Massachusetts Institute of Technology. (This example assumes that two children and two adults are working full-time for a minimum wage.)
The data weighs costs such as groceries, childcare, health care, housing, transportation, and other necessities. It does not include any income from safety net programs for the poor.
According to the analysis, single adults without children would generally do better than families. But in about half the states, the cost of living would still dwarf the incomes of workers who pay $ 15 an hour.
The deficits would generally be greatest for workers in the west and northeast – states like California, Hawaii, Massachusetts, and New York, and the District of Columbia – where the cost of living and taxes tend to be higher.
“When people scream [that a $15 minimum wage] is such a radical suggestion that is radical about it, quite frankly, how low it would actually be, “said Judy Conti, director of government affairs for the National Employment Law Project.
President Joe Biden has called for a floor wage of $ 15 an hour. House Democrats want to tie the policy – which would gradually increase wages through 2025 – with a $ 1.9 trillion pandemic aid package.
President Joe Biden speaks about coronavirus relief during a meeting with union leaders in the Oval Office on Wednesday, February 17, 2021.
Pete Marovich | Bloomberg | Getty Images
The Covid pandemic has pushed the concept of a living wage into greater relief as proponents claim to be on the front lines and key workers (often women and people of color) to be underpaid for work while putting their health at risk.
Democrats are trying to provide more pandemic aid by mid-March, even though the minimum wage measure is not guaranteed to survive. Biden reportedly told state officials last week that the raise is unlikely to survive any time soon, but promised to continue the policy.
Service workers will vote in Washington on January 26, 2021, to introduce the wage increase law, which includes a minimum wage of $ 15 for workers with tips.
Ever Countess | Getty Images Entertainment | Getty Images
A minimum wage of $ 15 would more than double the current federal standard.
The current national tax rate – $ 7.25 per hour, or about $ 15,000 per year before tax for a full-time employee – was set in 2009. It does not increase with the cost of living, so its purchasing power has decreased over time.
Many states have introduced a higher pay scale. Some cities and companies have done the same.
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As of January this year, 21 states were using the federal minimum, according to the Department of Labor. (Some, like Virginia, recently passed laws to raise them.)
The US minimum is less than half the “living wage” for a single adult ($ 15.41 an hour, or approximately $ 32,000 a year before tax), according to national data from MIT. It’s a third of what a family of four needs to live – roughly $ 21.50 per hour per parent, or nearly $ 90,000 a year combined. And the effects are exacerbated for single parents.
“People do not survive on the minimum wage,” said Amy Glasmeier, professor of economic geography and regional planning at MIT, who created a database of regional living wages in 2004 and updates it annually.
Performing everyday items can be a challenge. For example, a cell phone and broadband internet access – closely related to being able to get and keep a job in the digital age – cost about $ 120 a month, Glasmeier said. That’s almost 10% of the budget of a low-wage worker.
Low-wage earners may need to have additional jobs to pay bills and are often unable to save for emergencies or save money to buy assets like a home, Glasmeier said.
And there can be spillover effects in areas like health if people consistently buy inexpensive, processed foods because that’s all they can afford, she said.
The current wage gap relative to the cost of living is generally largest for workers in the South and Midwest. The cost of living there tends to be lower – but so is the minimum wage.
In these areas, a minimum wage of $ 15 would have a greater effect compared to closing the living wage gap, data shows.
Of course, the state averages the mask variation on more micro levels.
Workers in suburban and rural areas generally have lower costs of living than in cities, for example – and could benefit more from a higher national wage scale, Glasmeier said.
To say that a minimum wage of $ 15 an hour is the living wage just doesn’t make sense.
Economist, the Heritage Foundation
There are even clear differences between the metropolitan areas. For example, in San Francisco and San Jose, California, a family of four would need about $ 130,000 per year ($ 31 per hour) to afford the basics. In Jackson, Mississippi and Memphis, Tennessee, it’s nearly $ 79,000 ($ 19 an hour).
For comparison, in Holmes County, Mississippi, a rural area north of Jackson, the living wage for a family is less than $ 17 an hour, according to MIT.
Regional differences have led some to conclude that the federal government should not set a uniform national minimum wage.
“To say that a minimum wage of $ 15 an hour is the living wage just doesn’t make sense,” said Rachel Greszler, an economist at the Heritage Foundation, a conservative think tank.
“In some places, talking about wages isn’t really enough to support a family,” she said. “In other places it might be a fair wage to support a family.”
If Washington decides to raise the lower wage limit, federal legislators should also adjust the minimum wage regionally to the median wage in the region, Greszler said.
However, this approach would suppress wages in certain areas for people of color who disproportionately earn the minimum wage, said Conti of the National Employment Law Project.
“We don’t want to incorporate any more systemic racism,” she said. “That would have the effect of anchoring regional minimum wages at the national level.”
Wages against job loss
Critics argue a national wage increase would cause companies to cut jobs due to higher labor costs and potentially outweigh the benefits.
Around 27 million Americans would receive a wage increase by the middle of the decade, and 900,000 would be lifted out of poverty on a minimum wage of $ 15, according to the Congressional Budget Office. However, the CBO predicted that the policy would also create 1.4 million fewer jobs.
Greszler predicts that childcare costs would increase by an average of 21% or around $ 3,700 for a family with two children, negating some of the wage increases.
“It would increase the income of some but it would lose the income of others,” said Greszler. “I don’t think these are very good compromises.”
However, some economists dispute the Congressional Budget Office’s analysis.
“We believe the CBO’s assumptions about the extent of job losses are simply wrong and unreasonably high compared to what current business literature would indicate,” said economists at the Economic Policy Institute, a left-wing think tank.
A meta-analysis authored by Arindrajit Dube, an economist at the University of Massachusetts Amherst, found a near-zero workplace impact when examining evidence of various minimum wage increases.
A higher wage would also significantly reduce government spending on low-income support programs such as grocery stamps and income and child tax credits, according to the EPI.