Can a Family Survive on the U.S. Minimum Wage? (WMT, COST)

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In April of 2015, Walmart (WMT) — the largest private employer in the United States, increased its minimum wage to $9 an hour, directly benefiting a half million of its workers. By February of the following year, the mega-retailer bumped its hourly wage to $10, then to $11 an hour in 2018. Not only is this good news for Walmart employees, but the wage increase has begun to ripple out to other large employers of low-wage workers.

The minimum wages increase movement is largely worker-driven. Over the last few years, fast-food and retail workers have staged nationwide walkouts, in grassroots efforts to affect change, Home care workers, labor organizations, and women’s groups, have since joined the fight.

Key Takeaways [PLEASE PLACE IN CALL OUT BOX UNDER “WHAT YOU SHOULD KNOW”]–Since 2009, the federal minimum wage has been $7.25, or $15,080 a year, placing many workers well below the poverty line.
–Currently, 29 states plus Washington D.C. pay more than the federal wage floor, and individual cities like New York and San Francisco have raised their minimum wages to $15.
–Studies show that higher wage earners stick around longer, which creates a better shopping experience for customer.

The Federal Fight

Since 2009, the federal minimum wage has been $7.25, or $15,080 a year. Many economists believe this is woefully inadequate and unjust. Consider this: in order to simply have kept up with inflation since 1968, the minimum wage value would have needed to climb to $10.90.

This issue has lately become a partisan political football. During his presidency, Barack Obama signed an executive order to increase the minimum wage of some federal workers to $10.10, reasoning that the overall federal rate should also be raised to that amount. Although this campaign stalled in Congress, federal inaction prompted many states to legislate their own minimum wage increases.

Currently, 29 states, plus Washington D.C. pay more than the federal wage floor. Individual cities have also taken action. For example, New York and San Francisco have raised their minimum wages to $15–more the doubling the federal minimum.

The Arguments Pro and Con

Conservative business groups such as the National Retail Federation, and American Legislative Exchange Council (ALEC) oppose minimum wage increases, arguing that they would force businesses to hire fewer people, slash growth plans, and/or raise their prices. Under their theory, this would depress consumer demand and cripple the economy. (For more discussion, see How Minimum Wage Impacts Unemployment.)

A 2014 study from the nonpartisan Congressional Budget Office (CBO) estimated that raising the minimum wage to $10.10 would cause businesses to spend $15 billion more in salaries. Although this seems like a big number, consider that total wages in 2012 were $5.4 trillion. Therefore, that wage increase would represent just .003% — about a penny, for every three dollars spent on salaries.

Not all businesses are opposed. Costco Wholesale (COST) supports a national minimum wage hike and already pays its hourly wage earners an average of $20.89/hour. The Container Store (TCS), whose CEO just became chairman of the National Retail Federation, also supports an increase. And last year, Gap (GPS) and IKEA likewise raised their hourly wages above the mandated minimum.

Groups like Small Business Majority, Main Street Alliance and Business for a Fair Minimum Wage also support a higher wage, which they believe will inspire employee loyalty and boost workplace morale, which leads to more satisfied customers and an increase in consumer spending.

The Real Issue: Who Can Survive on Today’s Minimum Wage?

The minimum wage is meant to be a living wage. In 1933, five years before the first minimum wage became law, President Franklin Delano Roosevelt said: “By living wages, I mean more than a bare subsistence level. I mean the wages of a decent living.”

Today, full-time employees earning the federal minimum annually pocket just $15,080, placing them well below the $23,850 poverty line — even for families of two. And minimum-wage earners with families of four fall almost $9,000 below the poverty line.

Pay is not the only problem. Many companies don’t offer full-time hours, even when workers want them. Fluctuating schedules, split shifts, and the dreaded “clopening” (closing the store at night, then reporting back to work early the next morning to open it), make it difficult for employees to work second jobs, attend college classes or arrange child care.

Minimum-wage employees are also vulnerable to pay reduction from wage theft, which includes lack of overtime pay, erased time cards, and unpaid time employees spend going through lengthy security bag-checks.

The Typical Minimum Wage Worker

According to the CBO, Census Bureau data shows that 88% of minimum wage earners are adults 20 or older, and 55% of them are women. For these adults and their families, proper housing is unaffordable, which explains why so many of them require some measure of public assistance. A University of California, Berkeley, study found that more than half of fast-food workers are enrolled in one or more public programs.

According to David Cooper, an analyst with the Economic Policy Institute, raising the minimum wage to just $10.10 would annually reduce government expenditures on current income-support programs by at least $7.6 billion.

The Bottom Line

The minimum wage in the United States is no longer a living wage. At $7.25, the federal minimum hasn’t kept up with the cost of living since the late 1960s, and there’s a growing movement among workers, policy analysts, state and city governments, and even some employers, to raise it.

[Important: Data shows that a minimum-wage worker would have to put in a weekly total of about 122 hours, working 52 weeks per year, to afford a two-bedroom apartment.]  

Source: Investopedia