Saturday, October 10, 2015

Who can live on $556 a month?

$556 a month. That's about what a full-time minimum wage worker has left over after paying for rent (and that's even if they also qualify for food stamps).

Anyone who has followed the discussion about wages is already familiar with the fact that since 1979 wages have been flat (and in many cases, in decline) — and a lot of that has to do with the decline of labor unions.

And despite what many of the pundits claim, the job market is really not that tight (not with hundreds of thousands dropping out of labor force every month) — and another reason why wages remain so dismal. Job ads are posted, but rarely are there real jobs behind them. Employers aren't employing because they are simply not serious about hiring — or they are holding out for purple squirrels.

Since the Great Recession, one debate has been about raising the minimum wage — to stimulate more economic activity by creating more consumer demand, which in turn would (theoretically) create more job growth and raise wages.

But do fast-food workers and other minimum wage employees (especially single moms) really deserve a better standard of living?

Last July Senator Bernie Sanders introduced a bill for $15-an-hour minimum wage, saying "In the year 2015, a job must lift workers out of poverty, not keep them in it. The current federal minimum wage of $7.25 an hour is a starvation wage and must be raised to a living wage.”

More than 200 economists and labor experts (including former Labor Secretary Robert Reich) released a letter endorsing Bernie Sanders’ legislation:

"We, the undersigned professional economists, favor an increase in the federal minimum wage to $15 an hour as of 2020. The federal minimum wage is presently $7.25, and was most recently increased in 2009. We also support intermediate increases over the current federal minimum between now and 2020, such as a first-step raise to $10.50 an hour as of 2016."

Yesterday Alan B. Krueger at the New York Times asked: The Minimum Wage: How Much is Too Much?

"The federal minimum wage has been stuck at $7.25 an hour since 2009. While Congress has refused to take action, Democratic politicians have been engaged in something of a bidding war to propose raising the minimum wage ever higher: first to $10.10, then to $12, and now some are pushing for $15 an hour. Research suggests that a minimum wage set as high as $12 an hour will do more good than harm for low-wage workers, but a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences." [In 2013 six Democrats voted against raising the minimum wage.]

Later that same day, EconoSpeak responded:

"What Krueger seems to be aiming at is a zero risk of overshooting the ideal minimum, as if there were no cost to undershooting it. But surely, if we know that $12 is unlikely to bite back, then a proper balancing of risks should take us somewhere above $12 ... So is $15 the magic number? I don’t know. Like Krueger would probably say, we need more research. But what I do know is that, if $12 is very safe, the right number is higher than that."

Compared to the U.S., what do minimum wage workers earn in the "democratic socialist" countries of Europe?

  • Netherlands (the very liberal country whose capital is Amsterdam) pays their workers at least $11.06 an hour, their national minimum wage.
  • Ireland (who has the third most bars per capita) pays their workers a minimum of $11.09 an hour.
  • San Marino (an microstate inside Italy) pays their workers a minimum of $11.49 an hour.
  • Belgium (known for their waffles)pays their workers a minimum wage of $11.69 an hour.
  • France pays their little French fries $12.35 an hour.
  • Monaco (another microstate, but located on the French Riviera) pays a minimum wage of $12.83 an hour.
  • Luxembourg (the itty-bitty teeny-weeny little country where Mitt Romney likes to do his banking) can manage to pay their workers a bare minimum of $14.24 an hour.

And what about our friends "Down Under?" In New Zealand the minimum wage is $11.59 an hour for those under 18 years old, but it goes even higher to $14.25 for those over 18 years old. That's almost twice what it is in the U.S. — but in Australia it's a whopping $16.87 per hour! So if Crocodile Dundee had never become so rich in Hollywood (and started an offshore tax shelter), he could have at least flipped burgers and still managed to pay his rent.

In Denmark there's no legally mandated minimum wage, but the average minimum wage for all private and public sector collective bargaining agreements was approximately $20 per hour according to the U.S. State Department last year.

But yet, in the good ole U.S.A. — this "exceptional" country — in this land of opportunity — in the richest country on Earth — our "job creators" only want to pay their hard-working American Patriots a measly minimum wage of $7.25 hour (the current minimum wage). That is about half the bare minimum needed to live on, so why do some people say that's too much to live on?

The Economist:

"America as a whole is an outlier among advanced economies. Given the pattern across the rest of the OECD, a group of mostly rich countries, one would expect America, where GDP per person is $53,000, to pay a minimum wage around $12 an hour. That would mean a raise of about 65% for Americans earning the minimum pay rate."

When Alan B. Krueger at the New York Times had asked: "How much is too much?" — maybe we should also ask the multi-billionaires the same thing: "How much is too much?"

The CEOs and their political puppets also say that raising wages would slow hiring, reduce worker hours, cause layoffs, raise consumer prices and destroy the economy. But what these very same "job creators" never tell us is, if they did raise workers’ wages to an actual "living wage", they also might have to buy one less beachfront mansion, a smaller private jet or a shorter luxury yacht (And they also might have to postpone buying that Maserati or Lamborghini until next year).

The super-duper wealthy job creators have already been threatening to replace fast-food workers (who are earning slave wages) with robots. But the physicist Stephen Hawking says machines won't bring about the economic robot apocalypse — but greedy humans will. He predicted that economic inequality will skyrocket as more jobs become automated and the rich owners of machines refuse to share their fast-proliferating wealth: "If machines produce everything we need, the outcome will depend on how things are distributed."

If that's case, and Hawking is right, then we really are truly screwed — because we can't even get Congress to raise the federal minimum wage to a real "living wage". Instead, Congress might pass another bad trade agreement as the coup de grace to American workers. [The final leaked TPP text is all that we feared]

$15,080 $7.25 a hour (the current federal minimum wage) is $15,080 a year in total annual wages (and that's assuming someone can work 40 hours a week) and that's also assuming that there are no federal or payroll taxes being deducted.
$8,400 Now subtract annual rent: assuming $700 a month for rent, and that ALL utilities (electric, heat, gas, water, sewage, garbage disposal) are all included in the rent.
$556 This is the monthly balance leftover for all living expenses: food, healthcare and dental, clothes, transportation (auto loan, gas, auto insurance/or bus fare), retirement and/or emergency savings, phone/internet/cable, toiletries and cleaning supplies, entertainment.


Now deduct federal and payroll taxes and add the cost of utilities, and it's a lot less than $556 a month! Can you live on that?

Now imagine you're also a single mom/dad and have to work two part-time "on-call" jobs to get 40 hours a week (in our new "gig" economy) while arranging a schedule and paying for childcare too. That's not only inhumane, but it's obscene!

So if the minimum wage were doubled to $14.50 an hour — and their days/hours worked were cut by 50% — they still might be better off with the savings they'd have in transportation costs going to work and with less hours paid for daycare.

Full Disclosure: 42 years ago in 1973 (at 18 years old) I was earning $7.50 an hour in a union sheet metal shop as a welder's helper. According to the Bureau of Labor Statistics' CPI inflation calculator, what I earned in 1973 would be $38.78 an hour in 2012 — but according to the Bureau of Labor Statistics, the median wage for a welder in 2012 was only $17.45 per hour (less than half if the wage had kept up with inflation). What a skilled welder is paid today is about what I had earlier calculated the minimum wage should be. So $15 an hour (and adjusted for inflation) seems about right — especially for employees who work for large employers such as Wal-Mart, Home Depot and Burger King. And maybe some accommodation can be made for small businesses with limited annual revenues (meaning, we should not consider a hedge fund a "small business" just because of the number of their employees.)


  1. "Who can live on $556 a month?

    $556 a month. That's about what a full-time minimum wage worker has left over after paying for rent (and that's even if they also qualify for food stamps)."

    I live on $761/month -- my Social Security retirement benefit. I had to take early-SS at age 62, because of the job market, so I take a 30% penalty "for early withdrawal".

    I own my own 1BR/1BA condo in South Florida, so no rent; however, I pay $178/month in HOA fees, which leaves me with $583 for utilities, food, and other expenses ($31/month for water, $95/month for telephone+3Mbit/s Internet, $65/month for electric (average), and $45/month for cableTV; I also put $15/month aside for yearly property taxes, and pay $7.50/month for a digital subscription to the NYTimes). I manage to also save for emergencies, appliance repair/replacement, etc. I receive $82/month in SNAP benefits. No, I don't own a car; I ride a bicycle for sport and transport.

  2. UPDATE: I edited and posted another version of this post here:

    Is $15 a hour too much? Is $7.25 too little?