## Friday, March 4, 2016

### \$10.10 - \$7.25 Minimum Wage should equal a \$2.85 pay raise but is actually only \$1.92. See the funny math here...

What is the effect on a minimum wage worker, who claims SNAP benefits and the Earned Income Tax Credit--EITC (for the "working poor"), when the minimum wage is increased?  Each of these benefits decrease as the reported income to claim the benefits increases.

Assumptions: single parent of 2 dependent minor children.  Pays \$600 per month in rent and \$350 per month in child care (these could be high or low. I just picked two reasonable numbers).

Minimum Wage of \$7.25 X 40 hours per week  X 4.3 weeks in a month = \$1,247.00 in monthly market income.

SNAP Benefits at this monthly market income = \$453.00 per month  (Calculator here)

EITC at this market monthly income = \$462.00 (Calculator here)

Total market income and transfer payments = \$2,162.00

Hours worked in a month at 40 hours per week X 4.3 weeks in a month = 172 hours.

Effective hourly wage (\$2,162.00/172) = \$12.57 per hour

Minimum Wage of \$10.10 X 40 hours per week  X 4.3 weeks in a month = \$1737.00 in monthly market income.

SNAP Benefits at this monthly market income = \$342.00 per month (Calculator here)

EITC at this market monthly income = \$413.00 (Calculator here)

Total market income and transfer payments = \$2,492.00

Hours worked in a month at 40 hours per week X 4.3 weeks in a month = 172 hours.

Effective hourly wage (\$2,492.00/172) = \$14.49 per hour

Notice what happened here. The minimum wage increased by \$2.85 per hour (from \$7.25 to \$10.10), but this person's effective income to actually purchase stuff, market income plus transfer payments, increased only by \$1.92 (\$14.49 per hour - \$12.57 per hour).

I rarely hear this talked about, especially by proponents of an increase in the minimum wage.  While there is an actual increase in total compensation, hence potential consumption for this person, it is not as much as is touted.

The market income increases, but the transfer payments DECREASE as well which reduce the impact of the mandatory wage increase.

Anyway, I thought it interesting.  I hope you do too.

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