The $ 15 minimum wage does not cover living expenses for many Americans

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

While millions of people would receive a raise from a higher national wage floor, it still would not be enough to pay many workers a “living wage” – the salary that a person or family needs to cover their basic expenses.

This is especially true for families, largely because of higher living costs, such as childcare, compared to single adults.

Even with an increase to $ 15 an hour, an average family of four couldn’t afford the base in any U.S. state, according to a CNBC analysis of cost of living data collected by researchers at the Massachusetts Institute of Technology. (This example assumes that two children and two adults work full-time at a minimum wage.)

The data weighs costs such as food, childcare, healthcare, housing, transportation and other necessities. It does not include income from safety net programs for the poor.

According to the analysis, single adults without children would generally do better than families. But in about half of the states, the cost of living would still crowd out the earnings of workers paying $ 15 an hour.

The shortages would generally be greatest for workers in the West and Northeast – in states like California, Hawaii, Massachusetts, and New York, as well as in the District of Columbia – where the cost of living and taxes are typically higher.

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

President Joe Biden has called for a wage floor of $ 15 an hour. House Democrats want to link the policy – which would gradually increase wages through 2025 – with a $ 1.9 trillion pandemic relief package.

The Covid pandemic has eased the concept of a living wage to a greater extent, as proponents claim that front-line and essential workers (often women and people of color) are underpaid for their work, while putting their health at risk.

Democrats are trying to pass on more pandemic aid in mid-March, although survival of the minimum wage measure is not assured. Biden reportedly told state officials last week that the wage increase was unlikely to survive in the short term, but promised to continue the policy.

A minimum wage of $ 15 would be more than double the current federal standard.

The current national rate – $ 7.25 an hour, or about $ 15,000 a year before tax for a full-time worker – was set in 2009. It doesn’t increase with the cost of living, so purchasing power has eroded over time.

Many states have adopted a higher pay scale. Some cities and businesses have done the same.

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But according to the Department of Labor, 21 states used the federal minimum as of January this year. (Some, like Virginia, recently passed laws to increase it.)

The US minimum is less than half the “living wage” for a single adult ($ 15.41 an hour, or about $ 32,000 a year before taxes), according to national data collected by MIT. It’s a third of what a family of four needs – about $ 21.50 an hour per parent, or nearly $ 90,000 a year combined. And the effects are even greater for single parents.

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

Offering everyday items can be a challenge. For example, having a cell phone and broadband internet – closely tied to a person’s ability to get and keep a job in the digital age – costs about $ 120 a month, Glasmeier said. That’s almost 10% of a low earner’s budget.

Low-paid workers may need to get additional jobs to pay bills, and are often unable to save for emergencies or store money to buy assets such as a home, Glasmeier said.

And there can be spillovers in areas like health, if people consistently buy cheap, processed foods, because that’s all they can afford, she said.

The current wage gap in relation to the cost of living is generally greatest for workers in the South and Midwest. There, the cost of living is usually lower, but so is the minimum wage.

In these areas, a $ 15 minimum wage would have a greater effect when compared to closing the living wage gap, data shows.

Of course, state means masks variation at more micro levels.

Workers in suburban and rural areas generally have a lower cost of living than, say, cities – and can benefit more from a higher national pay scale, Glasmeier said.

There are marked differences even between metropolitan areas. In San Francisco and San Jose, California, for example, a family of four would need about $ 130,000 a year ($ 31 an hour) to pay for the basic necessities. In Jackson, Mississippi and Memphis, Tennessee, it’s closer to $ 79,000 ($ 19 an hour).

In comparison, in Holmes County, Mississippi, a rural area north of Jackson, the living wage for a family is under $ 17 an hour, according to data from MIT.

Regional differences have led some to conclude that the federal government should not adopt a uniform national minimum wage.

“To say that a minimum wage of $ 15 an hour is the living wage,” said Rachel Greszler, an economist at the Heritage Foundation, a conservative think tank.

“In some places, talking about pay just isn’t enough to support a family,” she said. “In other places, it may be an appropriate wage to support a family.”

If Washington decides to raise the wage floor, federal lawmakers will also need to adjust the minimum wage regionally based on the area’s average wage, 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 in it,” she said. “That’s what anchoring regional minimum wages at the national level would do.”

Critics argue that a national wage hike would cause companies to cut jobs due to higher labor costs, potentially outweighing the benefits.

About 27 million Americans would receive a pay rise by the middle of the decade, and 900,000 would be lifted out of poverty thanks to a minimum wage of $ 15, the Congressional Budget Office said. But the policy would also cut 1.4 million jobs, CBO predicted.

It would also cause childcare costs to rise an average of 21%, or about $ 3,700 for a family with two children, Greszler predicts, wiping out some of the wage increases.

“It would increase the income of some but lose income for others,” said Greszler. “I don’t think those are very good considerations.”

However, some economists dispute the Congressional Budget Office’s analysis.

“We believe that the CBO’s assumptions about the magnitude of job losses are simply wrong and inappropriately inflated compared to what the most advanced economic literature would indicate,” said economists at the Economic Policy Institute, a left-wing think tank.

A meta-analysis written by Arindrajit Dube, an economist at the University of Massachusetts Amherst, found a nearly zero job impact when examining evidence of several minimum wage increases.

Higher wages would also significantly reduce government spending on low-income support programs, such as food stamps and income and child tax credits, according to EPI.