Will $10 Minimum Wage Get All Working Americans Out of Poverty?
The Real News does the math with a single mother, who works for McDonalds, to find out if a potential wage increase will keep up with her cost of living
JESSICA DESVARIEUX, TRNN PRODUCER: Last week, President Obama kept his word and signed an executive order raising the minimum wage for new federal contracts. The order requires contractors to pay employees at least $10.10 an hour. At the signing, the president did not miss the opportunity to call Congress to do the same nationwide.
BARACK OBAMA, U.S. PRESIDENT: There’s a right now in front of both the House and the Senate that would boost America’s minimum wage to $10.10 an hour–just like I’m doing with this executive action. It’s easy to remember: 10-10–10-10. Let’s get that done. Raise the federal minimum wage to $10.10 wouldn’t just raise wages for minimum-wage workers, its effect would lift wages for about 28 million Americans. It would lift millions of Americans out of poverty immediately. It would help millions more work their way out of poverty–without requiring a single dollar in new taxes or spending.
DESVARIEUX: But in this picture-perfect moment, you can see in the background a group of low-wage workers. One of them is Arthur Helms. As a Wendy’s employee making about $9 an hour, Arthur’s been on the front lines fighting for a higher wage before it became a talking point on Capitol Hill. He says this raise is a jump-start but not the finish line.
ARTHUR HELMS, WENDY’S EMPLOYEE: Actually, I don’t think $10 will get you out of poverty. I don’t think $12 will get you out of poverty. I mean, $15 can be a better start. You know. But the $10, it’s a jump-start.
DESVARIEUX: A jump-start is how many in the wage movement are framing the news, especially in light of major corporations, like the Gap, announcing that they will be raising their minimum wage to $10 an hour next year.
But if you factor in the $8.7 billion in cuts to food stamps, would raising the minimum wage to $10 an hour get a working parent out of poverty?
The Real News sat down and did the math with Cheria Cash. She’s a 31-year-old single mother who was hired full-time at McDonald’s and on food stamps.
CHERIA CASH, MCDONALD’S EMPLOYEE: I work at McDonald’s in Pittsburg, P.A., and that’s on the north side. And they pay me $7.70.
DESVARIEUX: Making $7.70 an hour, Cheria says that she usually only gets 30 hours of work a week. That comes out to $231 of gross weekly income. After she pays Social Security, taxes, and Medicare, she says that she only takes home $380 every two weeks, or about $820 a month, if she works the full 52 weeks a year. She also has a teenage son and receives $326 a month in food stamps.
Before she receives her earned income tax credit, her monthly income and food stamp benefits total $1,149.
CASH: When you think about it, it’s like, gosh, it costs more to get to work this week, and I didn’t even make that much. You know? Like, I spend my whole check to get back and forth to work or to eat. You know? So it’s not even about going out or anything like that. It’s just basically surviving, you know?
DESVARIEUX: Now let’s see how she survives with earning $10.10 an hour. Her weekly gross income would get boosted up to $303 a week. Her monthly income would jump to $1,076. With the same food stamp benefits of $326 a month, and not including the couple of thousands for earned income tax credit, Cheria would have $1,402 a month to live on.
Fortunately for Cheria, she is not one of the 850,000 households who will see an average cut of about $90 a month to their benefits. That’s according to the nonpartisan Congressional Budget Office, since she does not receive heating assistance.
But after looking at both situations, we asked an economic analyst if Cheria has made it out of poverty by earning $10 an hour?
DAVID COOPER, ECONOMIC ANALYST, ECONOMIC POLICY INSTITUTE: For a parent with one child, the federal poverty line is about $15,700. So right now she’s definitely below the poverty line. If the federal minimum wage went up to $10.10, her income would go up significantly. Her pre-tax income annually would probably be right around that $15,700 mark. So she’d probably be just above the poverty line or right near it.
DESVARIEUX: But though Cheria seems to squeak right above the poverty line, David Cooper says that the federal poverty line is not the most accurate measure of the reality of today’s cost of living.
COOPER: The poverty line was developed in the late 1950s. And what they did at that time is they basically said, well, what does it cost to buy sort of your basic essential bundle of food? And people tend to spend about three times more than that in total on everything else that they’re buying. So we’ll set the poverty line at basically three times the cost of what it takes to buy food. Now this is food in the 1950s, and since then, you know, the prices on things like health care and housing in particular have gone up a lot faster than the price of food, but we’ve only adjusted the poverty line based on overall inflation. So that means that today’s poverty line is really not a very accurate measure of what it actually takes for someone to live.
DESVARIEUX: To account for people’s actual living costs, EPI devised a tool called the Family Budget Calculator. We decided to try it out based on Cheria’s family size and the fact that she lives in the city of Pittsburg.
COOPER: For one parent and one child, we estimate it takes an annual income of about $48,000 to have a modest but secure standard of living. Right now she has an income of about $12,000-$13,000 total.
DESVARIEUX: It’s discrepancies like this one that have led to broad public support for raising the minimum wage. According to a Quinnipiac poll last month, 71 percent of American voters support raising the minimum wage.
But Republicans are ready to fight back the $10 wage, especially considering the recent report from the nonpartisan Congressional Budget Office.
The report states that the $10 an hour wage hike would get 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers in an average week.
But the wage hike could also cause the economy to lose half a million jobs.
DOUG ELMENDORF, DIRECTOR, CONGRESSIONAL BUDGET OFFICE: The set of research studies in this area led us to conclude that an increase in the minimum wage would probably have a small negative effect on employment, but there was substantial uncertainty around that estimate, as we reported.
DESVARIEUX: The CBO’s uncertainty is what Howard University economics professor William Spriggs points to as one of the weaknesses of the report.
WILLIAM SPRIGGS, PROF. ECONOMICS, HOWARD UNIVERSITY: They cited many, many reviews of the literature on minimum wage, all of which show either no loss of jobs, small gains in jobs, or very tiny losses of jobs. And for them to have chosen a very sensitive reaction to the increase in the minimum wage just doesn’t line up with the studies that they cite. So I’m taking their 500,000 with a huge grain of salt. For me, that’s beyond the worst-case scenario. I would only give that a 2 percent chance of happening.
DESVARIEUX: Professor Spriggs says that raising the minimum wage would lift millions out of poverty. But it wouldn’t get all full-time workers out of poverty. Therefore, he says, the minimum wage should really be pegged to productivity and start at $15 an hour.
SPRIGGS: We really need it to be $15. The reason we need it to be $15 is the bigger picture here, is that wages for all workers have been stagnant if not falling back, even for skilled workers and the most skilled workers.
So take electricians as an example. They don’t face imports, ’cause if you’re hiring an electrician, you can’t import one, and they rarely face competition from people who migrate to this country. But even the top 10 percent, the very highest paid electricians, have seen their wages go backwards this last decade.
So even skilled workers in the United States are seeing their wages slide backwards. They aren’t keeping up with productivity.
And we know that the gap is over 30 percent between where wages and productivity were in the late 1970s and where they are today. So if we had kept the minimum wage constant with productivity increases, then the minimum wage, if you had kept it from the 1970s to today, 1968 to today, the minimum wage would be somewhere close to $20 an hour.
The $15 an hour says, okay, very low wage workers aren’t as productive as is the average for the economy, so we think that they’ve only got about half as productive. They would get $15 an hour.
And it’s that gap between wages, between what people take home and what they’re producing for companies, that is creating the underlying problem that we have in our economy, because if you can’t make enough money to buy what you just made, it means I don’t need you, ’cause I can’t sell what you just made. So it’s kind of common sense. It’s what Henry Ford said. You know, I can have these really productive autoworkers on this line and I can make thousands of cars, but if nobody can buy the car, what does that mean? So I got to pay somebody so they can buy the cars. Same thing is true today. And we’ve walked away from the relationship between productivity and wages.
Productivity is up. Wages are not. Gaining the minimum wage to $15 and then linking it to productivity would mean that we would have a way to restore the relationship between wages and productivity.
DESVARIEUX: Workers like Cheria in the Fight for 15 say $15 an hour would allow them to invest in the future.
CASH: If you give us $15, I know I’ll be able to buy a pair of shoes more than once a year. I won’t have to wait for my income tax money to buy stuff. I could actually save my income tax money and put that towards, like, my son’s education.
DESVARIEUX: Hopes for a $15 wage may seem farfetched, as Congress cannot settle on a $10 wage increase. But Democratic Senate majority leader Harry Reid says he will bring the minimum wage $10.10 bill to the Senate floor for a vote next month.
Congress may attempt to compromise, considering the CBO’s companion analysis of a $9 minimum wage.
But considering $10 will barely get Cheria above the federal poverty line, $9 will certainly have her coming up short–again.
For The Real News Network, Jessica Desvarieux, Washington.
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.