Home Business $15 minimum wage won’t cover living costs for many Americans

$15 minimum wage won’t cover living costs for many Americans

An activist wears a “Fight For $15” T-shirt at a news conference prior to a vote on the Raise the Wage Act, July 18, 2019 at the U.S. Capitol.

Alex Wong | Getty Images

A $15 minimum wage could become a reality in the U.S.

While millions would get a pay boost from a higher national wage floor, it would still fall short of paying many workers a “living wage” — the salary a person or family needs to cover their basic expenses.

That’s especially true for families, largely due to higher living costs like childcare, relative to single adults.

Even with a raise to $15 per hour, a typical family of four couldn’t afford the basics in any U.S. state, according to a CNBC analysis of cost-of-living data assembled by researchers at the Massachusetts Institute of Technology. (This example assumes two kids and two adults working full-time for minimum pay.)

The data weighs costs like food, childcare, health care, housing, transportation and other necessities. It doesn’t include income from safety net programs for the poor.

Single adults without kids would generally fare better than families, according to the analysis. But, in about half of states, the cost of living would still eclipse earnings for workers paid $15 an hour.

The shortfalls would generally be greatest for workers in the West and Northeast — in states like California, Hawaii, Massachusetts and New York, as well as the District of Columbia — where the cost of living and taxes tend to be higher.

“When people are screaming [that a $15 minimum wage] is such a radical proposition, the radical thing about it is, quite frankly, how low it would actually be,” said Judy Conti, government affairs director at the National Employment Law Project, a worker advocacy group.

President Joe Biden has called for a $15 hourly pay floor. House Democrats aim to attach the policy — which would gradually raise the wage through 2025 — to a $1.9 trillion pandemic aid package.

President Joe Biden speaks during a meeting with labor leaders on coronavirus relief in the Oval Office on Wednesday, Feb. 17, 2021.

Pete Marovich | Bloomberg | Getty Images

The Covid pandemic has thrust the concept of a living wage into starker relief, as advocates claim frontline and essential workers (often women and people of color) are underpaid for their labor while putting their health at risk.

Democrats are trying to pass more pandemic aid by mid-March, though survival of the minimum-wage measure isn’t assured. Biden reportedly told state officials last week that the pay hike was unlikely to survive in the near term but promised to continue pursuing the policy.

‘Not surviving’

Service industry workers speak in support of the introduction of the Raise the Wage Act, which includes a $15 minimum wage for tipped workers, on Jan. 26, 2021 in Washington.

Jemal Countess | Getty Images Entertainment | Getty Images

“People are not surviving on the minimum wage,” said Amy Glasmeier, a professor of economic geography and regional planning at MIT, who created a database of regional living wages in 2004 and updates it annually.

Affording everyday items can be a challenge. For example, having a cell phone and broadband internet access — tightly linked to one’s ability to get and hold a job in the digital age — costs about $120 a month, Glasmeier said. That’s almost 10% of a low-wage earner’s budget.

Low-paid workers may need to work extra jobs to pay bills, and are often unable to save for emergencies or store away money to buy assets like a house, Glasmeier said.

And there may be spillover effects in areas like health, if people consistently buy low-cost, processed foods because that’s all they can afford, she said.

Regional differences

The current wage shortfall relative to the cost of living is generally greatest for workers in the South and Midwest. There, the cost of living tends to be lower — but so does the minimum pay.

In these areas, a $15 minimum wage would have a bigger effect relative to closing the living-wage gap, data show.

Of course, state averages mask variation at more micro levels.

Workers in suburban and rural areas generally have lower costs of living than those in cities, for example – and stand to gain more from a higher national pay scale, Glasmeier said.

To say a $15-per-hour minimum wage is the living wage just doesn’t make sense.

Rachel Greszler

economist, the Heritage Foundation

“In some places, it’s actually not enough, if you’re talking about a wage to support a family,” she said. “In other places, it might be an adequate wage to support a family.”

If Washington decides to raise the pay floor, federal lawmakers should also adjust the minimum wage regionally according to the area’s median pay, 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 put more systemic racism into it,” she said. “That’s what enshrining regional minimum wages at national level would do.”

Wages vs. job loss

However, some economists dispute the Congressional Budget Office analysis.

“We believe that the CBO’s assumptions on the scale of job loss are just wrong and inappropriately inflated relative to what cutting-edge economics literature would indicate,” according to economists at the Economic Policy Institute, a left-leaning think tank.

One meta-analysis, authored by Arindrajit Dube, an economist at the University of Massachusetts Amherst, found a job impact near zero when examining evidence of various minimum-wage increases.

A higher wage would also significantly reduce government spending on programs to support low earners, like food stamps and the earned-income and child tax credits, according to EPI.