A minimum wage, but not much of a living
(MoneyWatch) A person living alone in Washington, D.C., must earn $13.68 an hour to make ends meet, according to the Massachusetts Institute of Technology'sLiving Wage Calculator. With one child, that number jumps to $26.37. In New York City, an adult must earn $12.75 an hour to make a living wage. In Chicago, it's $10.50 an hour and in San Francisco, $12.83.
And that's not the kind of middle-class existence that commonly includes trips to the mall, restaurant dinners and savings accounts. That's just to scrape by with enough money for food, child care, medical expenses, housing, transportation and taxes.
Most minimum-wage workers get a smaller paycheck. The federal minimum wage, which hasn't increased in four years, is $7.25 an hour. The hourly rates above are also higher than the more generous minimum wage standards set by certain cities and states.
Low-wage workers face another problem: Rising housing costs. Increasing home and rental prices are making housing less affordable, meaning that minimum wage is worth even less than it was last year. Rents have risen 3 percent in 2013 over last year and are expected to move higher, according to real estate research firm Reis. Housing costs are the most stubborn portion of a monthly budget -- food and medical costs can be cut or given up, but rent prices are less flexible.
Diana Pearce, senior director of the Center for Women's Welfare School of Social Work at the University of Washington, calls this squeeze "alligator economics." Think of it as a chart: Cost is going up, forming the top edge of an alligator's mouth, while wages stay the same, forming the lower jaw. Minimum-wage earners are trapped inside this toothy mouth.
"You're really squeezing poor, working people," Pearce said.
President Barack Obama has backed a bill that would raise the minimum wage to $10.10. Other measures have been introduced in Congress that would raise the minimum wage to between $10.55 and $12.50.
Harriet Tregoning, director of the office of planning in Washington, said that local taxpayers effectively subsidize minimum-wage workers to the tune of millions of dollars each year. The city spends a lot on transportation assistance for the working poor, as well as on housing and childcare. The city's free pre-kindergarten program costs about $20,000 per child per year.
These programs make living and working in the nation's capital possible for minimum-wage families. But if the minimum wage was really a living wage, taxpayers wouldn't have to pick up the cost.
Meanwhile, one minimum wage bill passed through the city council but was vetoed by the mayor because it singled out big box retailers with more than 75,000 square feet of retail space. The legislation seemed to say that those working at a big-box retailer such as Wal-Mart would not be able to get by on minimum wage, yet all other workers could, Tregoning said.
Pearce, who has been studying the issue for more than 20 years, said that the current fears held by those opposed to raising the minimum wage are unfounded. Employers threaten that they will have to cut back on employees, as well as their hours and benefits, and would have to raise prices.
"If you raise the price of labor, one obvious answer is to cut back, but that didn't play out in the real world," she said.
Employers can cut back on the number of employees, but in the real world most employers don't do that, she said. They can cut back on benefits, but minimum-wage workers don't have much to cut back on. Businesses also can increase prices, but she found that even when minimum wage increases 10 percent, prices increase only 0.4 to 0.7 percent, according to a study by the Center for Economic and Policy Research.
Other studies show that offering a living wage can boost productivity and efficiency, largely due to lower turnover rates. When the San Francisco International Airport increased the minimum wage for workers to between $9 and $11.25 an hour, research found that employers saved money because turnover costs were drastically reduced.
