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

In the past, Walmart (WMT), the largest private employer in the United States, announced that half a million of its workers would get a pay bump to at least $9 an hour by April (2015) and at least $10 by the following February (2016). In 2018, Walmart announced plans to increase its starting wage rate to $11 an hour. That’s good news for Walmart employees, but also is likely to have a ripple effect for many more at other large employers of low-wage workers.

One might ask, what took so long? Walmart and other big employers of minimum-wage workers have been under increasing pressure over the last few years, as fast-food and retail workers staged nationwide walkouts for a higher minimum wage. Now home care workers are joining them. The growing national movement to raise the minimum wage, led by labor and women’s groups, has been getting increasing political attention – and results.

Since 2009, the federal minimum wage has been $7.25, or $15,080 a year. Just to have kept up with inflation since 1968, the high-water mark of the minimum wage’s value, it would need to be $10.90. But raising the minimum wage has become a political football, with Republicans generally lining up against and Democrats for. Years ago, President Obama signed an executive order to increase the minimum wage of some federal workers to $10.10, urging that the overall federal rate also be raised to that amount. Not surprisingly, the campaign to boost the overall federal minimum was stalled in Congress. Faced with federal inaction, many states chose to move ahead and legislate or vote in their own changes: Twenty-nine states, plus D.C., now pay more than the federal wage floor. (Employers must pay the state or federal minimum, whichever is higher.) Cities have also taken action: San Francisco and Seattle, for instance, are in the process or have already raised their minimum wage to $15, the highest in the nation.

The broad American public supports an increase, polls show. A November 2013 Gallup poll found that more than three-quarters of Americans favored a hike in the minimum wage to $9 an hour. By January 2015, when Hart Research did a nationwide survey, 75% of Americans supported raising the federal minimum wage to $12.50 per hour by 2020, with even a majority of Republicans (53%) favoring it. The poll further showed that 63% of those surveyed favored hiking the minimum to $15 by 2020. And, in 2017, polls showed 74% favored an increase in the minimum wage.

Some business and conservative groups – the National Retail Federation, National Federation of Independent Business, American Legislative Exchange Council (ALEC), to name a few – oppose any increase to the minimum wage, calling it a job killer and anti-job tax. They argue that it will force businesses to hire fewer people, cut back on their growth plans or raise their prices (which would lower demand and therefore be bad for the economy). (For more discussion, see How Minimum Wage Impacts Unemployment.)

A February 2014 study from the nonpartisan Congressional Budget Office (CBO) estimated that raising the minimum wage in steps to $10.10 by 2017 would reduce employment by 500,000 workers and lift 900,000 people above the poverty line. It reported that businesses would have to spend $15 billion more in salaries. That sounds like a big number. But total wages were $5.4 trillion in 2012, so that increase to wage costs would be just .003% or about one penny for every three dollars spent on salaries.

Not all businesses are opposed. Costco Wholesale (COST), for instance, supports a national minimum wage hike and already pays its hourly wage earners an average of $20.89/hour, not including overtime. The Container Store (TCS), whose CEO just became chairman of the National Retail Federation, also supports it. Last year, Gap (GPS) and Ikea – perhaps seeing the writing on the wall – raised their hourly wages above the mandated minimum. Groups like Small Business Majority, Main Street Alliance and Business for a Fair Minimum Wage support a higher wage, as do many individual owners who point to savings on turnover costs and gaining happier employees – the key to happier customers. Small specialty retailers with “destination” stores – dance supply stores is one example – already often pay more than minimum wage to attract and retain knowledgeable sales staff. (See also The Cost of Hiring a New Employee.)

Over the last 15 years, a growing body of economic research has studied the impact of the minimum wage. Economists no longer see job losses as the inevitable result of raising the minimum wage. And research backs up New York City’s Mayor Bloomberg’s statement in 2012: “Raising the minimum wage will put much-needed cash in the pockets of more than 1.2 million New Yorkers, who will spend those extra dollars in local stores.”

The minimum wage is meant to be a living wage. “By living wages, I mean more than a bare subsistence level – I mean the wages of a decent living.” President Roosevelt’s words in 1933, five years before the first minimum wage became law. These days, it’s anything but a living wage. Someone working full-time at the federal minimum earns an annual paycheck of just $15,080 – below the poverty line for even a family of two. For the minimum-wage earner with a family of four, a full-time paycheck falls almost $9,000 below the poverty line, which is $23,850. Even a $10.10/hour full-time job – an annual $21,008 – falls short.

Pay is not the only problem with minimum wage jobs, either. Many don’t offer full-time hours, even when workers want them. And new shift-scheduling software which is cost-efficient for the employer (booking employees only at the highest traffic times) can be hell for the employee. Ever-changing and on-call schedules split shifts and the dreaded “clopening” (closing up the store at night and having to report early the next morning for opening) make it hard to take a second job or attend college classes or arrange for child care. Minimum-wage employees are also vulnerable to so-called wage theft, reducing their pay even further, a spate of recent lawsuits has revealed: everything from no overtime pay and erased time cards, to off-the-clock time employees are forced to spend checking schedules or going through lengthy security bag-checks.

Contrary to stereotype, the typical minimum-wage worker is not a middle-class teenager earning pocket money. According to the CBO, based on Census Bureau data, 88% of minimum wage earners are adults 20 or older; 55% are women. For these adults and their families, proper housing is unaffordable, as a June 2018 report from the National Low Income Housing Coalition (based on federal data) states 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.  

All of this helps explain why so many minimum-wage workers are also on some kind 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. Forbes summed up the economic impact of this with the headline: “Fast Food Companies Outsource $7 Billion in Annual Labor Costs to Taxpayers.”

Raising the minimum wage to even $10.10 would reduce government expenditures on current income-support programs by at least $7.6 billion per year, according to analyst David Cooper of the Economic Policy Institute. “Essentially, low-wage employers are being subsidized by the taxpayer. Prices are going up, but paychecks are not, and taxpayers are making up the difference.”

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 '60s, and there’s a growing movement among workers, policy analysts, state and city governments – and even some employers – to raise it. A boost to just $10.10 would lift 900,000 out of poverty, projects the CBO. While opponents argue that raising the minimum wage would be bad for businesses and the economy, increasingly sophisticated economic research shows that a rise in the minimum wage does not automatically cause job losses and can act as an economic stimulus as it boosts the spending power of millions of workers. And then there’s the simple point, as Senator Tom Harkin put it: “In a nation as wealthy as the United States, no one who works hard for a living should live in poverty.”