This graph (the BLUE LINE) below shows the yearly income of person working 2,000 hours in a year and earning a minimum wage of $7.25. That would be a gross total of $14,500. Going from Right to Left on the BLUE line is that $14,500 adjusted for inflation. Example: Go back to 1976 (the left most tip of the blue line). Take the $18,300 annual income and divide by 2,000 hours worked. You get a wage of $9.15. This means for a minimum wage worker TODAY to have the SAME purchasing power as a minimum wage worker in 1976 he/she would have to earn $9.15 per hour. This is what it means when people refer to the minimum wage not keeping up with inflation.
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| Source: NY TIMES Tax Policy Center |
A household that has one wage earner making just the minimum wage AND has 2 dependent children is eligible for a cash tax credit of $5,320 (source HERE).
The RED line in the graph above shows the early salary of a minimum wage worker PLUS the dollar value of the EITC in any given year since 1976.
So, in 2013 if we include the EITC as income/compensation along with the $14,500 in wage income we get a gross total of $19,872 for those 2,000 hours worked. That is an effective hourly wage rate of $9.94.
Now look at the same graph below with the dotted line I inserted. While the the nominal minimum wage has lost purchasing power due to inflation, the difference in the erosion has been compensated for, in large part, by the increase in EITC payments.
So, if we include the EITC as a form of compensation to the working poor we get different take on whether or not the working poor are worse off compared to yesteryear.
My take is the working poor are not better off or worse off when you look at it like this. However, if the increasing use of tax money is used to make up the difference in lost purchasing power for the working poor, then we seriously have to look at the minimum wage and the function it serves.
This serves as ANOTHER subsidy for employers, especially the LARGE ONES who pay the minimum. Think about that. There has to be a better way.
Whatcha' think????
Addendum: I estimated this wage earner would be eligible for about $400.00 per month in SNAP (food assistance/Food Stamps). On a yearly basis that would be a cash value of $4,800.00. Using the 2,000 hours worked in a year, that would work out to $2.40 per hour we would have to add to the $9.94.
So total hourly wage with EITC and SNAP benefits would be $12.34.
In effect, taxpayers at the minimum are subsidizing minimum wage paying companies to the tune of $5.09 in order to lift people out of poverty. Pretty sure I could come up with additional transfer payments that would increase that subsidy.
Hello Gene. Great way of looking at the data. Combined graph that shows EITC and Min Wage has been largely missed in the recent conversations. Also, what has been largely missed is that ACA is way to provide further benefits to the poor who will now likely qualify for medical or get highly subsidized healthcare. However, with bigger companies making record profits with increasing executive compensations, raising the minimum wage seems like its about due and I think it would be stimulative for the economy as a whole because the poor tend to spend most of their money right away.
ReplyDeleteKunal
Thank you for your comment, Kunal. I appreciate it. Regarding the minimum wage. What I ask people is this: "Next time you go to a large shopping center with a Walmart in it stop and look around at ALL the other businesses that surround it. Most of them (from my observations) are small to medium-ish sized businesses (yogurt stores, family owned restaurants, salons, dry cleaners, and many others). If the Min Wage increased to $15.00 because Walmart and McDonalds could pay that, then what do you think would happen to virtually ALL of those other business in the shopping center?". I think the answer is pretty obvious, but I may be wrong. How much can they pay more without raising prices, which is very hard to do. I promise, they are not getting rich!!!
DeleteAgain, there is always more to consider. As a former small businesses person I familiar with the general cost structure and I just don't see how they avoid closing the doors.
I hope all is well with you and you are keeping warm and dry with all this nasty weather around the country. :)
Gene, I am in Southern California and its even cold out here. Although, most people outside may not consider low 60s as cold but all of us here are freezing! haha. Are you still in Texas? I heard its pretty cold there.
ReplyDeleteYou are completely right that the decision should not be based only on large corporations since middle class businesses would hurt the most with a Min Wage increase. I do know that they maybe struggling to make ends meet and having to grapple with wage increase may mean closing doors for some. I do not think increasing to $15 is realistic either. That is way too much. Although, I think a little increase is due. Maybe to $9 or so. Many states already have higher min. wages and raising to $9 is not unreasonably high (Cali is planning on raising it to $9 and then $10, regardless). The reason why I still support a slight increase is that many adults are working minimum wage jobs that are primary care takers of the family. Min Wage Jobs are less frequently just teenagers working during summers. As we increasingly become a service oriented country, we ought to pay decent wages to the people that provide service. Most of the cost will be kicked to the consumers, who likely will complain but fork it out.
Kunal
You points are well taken. I am going to go out on a limb and make a prediction. One of the major companies (like Walmart or McDonalds) will come out in the next few months and announce they will have as a policy of having starting wage of something significantly higher than the minimum, maybe close to $9.00. If I had to narrow that down I am going to say Walmart. Just a hunch. Walmart usually responds to public criticism, slowly but surely.
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