Wednesday, September 3, 2008

Doing the Minimum

So I managed to get myself into a dispute with someone in another arena about the minimum wage. He seemed to think that the free market would sort everything out equitably if we eliminated it. (He also provided no data to support this assertion. I have to charitably assume that he thinks this will be the case because he just has that much faith in humanity to "do the right thing.")

I'm not even going to touch that, but someone came along and attempted to defend Mr. Free-market's viewpoint. At the end of his post, he posed a philosophical question of sorts. What is the intent of the minimum wage?

I think that the "intent" of the minimum wage is to make sure that employers aren't paying employees less than they are able to live on. I decided to dig up some information on the subject.

The Economic Policy Institute has an interesting calculator that lets you put in typical family structures and locations to calculate a "basic family budget." The budget only covers the cost of food, shelter, and clothing. It includes "no savings, no restaurant meals, no emergency funds--not even renter's insurance."

I decided to calculate the cost of living based on two parents and one child for Indianapolis, Indiana. I myself live in Indianapolis, so I can tell you exactly how much I pay to live here for comparison. I live with three other roommates and we all pay equal shares, but we also all earn wages and are employed at least part-time (I work about 10-12 hours a week). I am also lucky to have parents that pay some portion of my expenses (I am a full-time student). Unless stated otherwise, I am only listing my share. To estimate the "actual" cost, multiply by four.

  • My monthly rent is $1000, of which I owe 1/4 (I have roommates) for a total of $250/month.
  • I spend about $125/month on groceries.
  • My basic utilities cost me about $150 a month.
  • I also have phone and internet access that costs me $12/month.
  • I don't pay my own car insurance, but I decided to estimate it by getting a quote from my insurance company. Basic coverage would cost me $100/month.
  • Gas to operate that car currently costs me about $45/month.

Total: I spend $632/month for my barest necessities, not factoring in entertainment or savings, which amounts to $8,184 per year. It also doesn't include health insurance, which I have through my family. I suppose I could tack an extra $75/month on for a health care plan that basically doesn't cover anything--that's what my girlfriend has (and a $2500 deductible, to boot). If I had to pay everything myself it would cost $32,736 per year. None of this accounts for my $30,000/year education, which I can only pay for because the government is subsidizing some loans and I have a small scholarship.

The budget calculator suggests the following monthly expenses for a family of two with one child living in my city:

  • Housing: $726
  • Food:: $514
  • Child care: $542
  • Transportation:: $447
  • Health care: $286
  • Other necessities: $298 (I assume they mean toiletries, clothing, etc)
  • Monthly taxes paid: $377

The monthly total is $3,189 and the annual total is $38,273. I have zero problems believing that this calculator is accurate at estimating the cost of a family of three living in Indianapolis.

Indiana's minimum wage is $6.55/hour as of July 24th, 2008.

$6.55/hour x 40 hours/week x 52 weeks/year means that if you take no unpaid vacation, get no overtime, and work every day you possibly can you make $13,624 per year in Indiana. If you are married or in a domestic partnership and your spouse has the same earning potential you will therefore make $27,248 per year, before taxes.

You are about $10,000 short.

As far as state taxes go, Indiana has the third lowestindividual income tax rate of any state as of 2007. Federal income tax for this family will be filed jointly (let's assume they're married). For reference, here is a tax bracket calculator. They make between $16,050 and $65,100, so they pay 15%, or $4,087. But hey, they get it all back, right?

In short, anyone arguing that the minimum wage is actually sufficient to live on clearly hasn't done any math lately. How is the average American family supposed to live with a $10,000 budget deficit? And that's without any recreational expenses. No movies, no restaurant dinners, no mommy-and-daddy dates, no alcohol or tobacco purchases. The answer is that they borrow it, and that's where we get into trouble.

Here's the thing. You have to be a dreadfully callous human being to say that people who work minimum wage jobs (mostly those who didn't or can't get a college education) don't deserve a living wage. Should people with more education make more money? Of course. But should people with only a high school diploma be paid less than they can afford to live on?

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