The Minimum "Living Wage" 02-03-2003
You've heard that this organization or that organization has studied minimum wage laws, and determined that it take a certain amount of money to live on. They say that this minimum amount should be the new minimum wage.
For example, the book Nickeled and Dimed, by Barbara Ehrenreich, uses the quote "According to the National Coalition for the Homeless, in 1988 it took, on average nationwide, an hourly wage of $8.89 to afford a one-bedroom apartment." You'll now hear this phrase parroted over and over again in countless reviews. (Since this quote is uses all the time and it occurs on page 3 I am really starting to wonder how many of these reviewers actually read the entire book.)
Well that sounds nice, but is it true?
The more I read such numbers the more I find that people will believe anything they are told "has been studied". So here is my 2 hour effort on the subject.
When you go to the National Coalition for the Homeless website you find a link to the Universal Living Wage website when you look for articles about wages or a minimum wage,,,, so off we go.
Thankfully this particular subject is easy to check for yourself, because of the well documented website. I can't claim that they are being dishonest because they do explicitly state how they came to their conclusions. I can say that after even a brief view, most people would not agree with their method, and would not agree with their answers.
They state that it requires a Living wage of $12.73 to get by.
These numbers are for the area of Raleigh-Durham-Chapel Hill, for a 1 bedroom apartment, 2002.
They come to this conclusion by the following formula. You can go to their page here to make sure I am not paraphrasing incorrectly.
Their basic premise is "We have devised a National formula that is based on each local economy throughout the entire United States. The formula is designed in such a manner that no matter whether you are in Austin, Boston, or L.A., if you are willing and able to work a 40 hour week, you should at least be able to afford the cheapest form of housing."
Specifically, "No more than 30% of a person's gross income should be spent on Housing." and given FMR (Fair Market Rents) in an area, we can compute your living wage.
Living Wage = (FMR monthly / 0.30)/ 173 hrs per month
So, the two things we need to know are, How is the FMR calculated?, and how valid is this 30% of your gross income?
From their website we have the following
"FMRs are gross rent estimates; they include shelter rent and the cost of utilities."
"The level at which FMRs are set is expressed as a percentile point within the rent distribution of standard quality rental housing units. The current definition used is the 40th percentile rent, the dollar amount below which 40 percent of standard quality rental housing units rent."
1st: They are saying that a person at the lowest end of the wage scale should be able to afford any 4 out of 10 apartments in the entire area. This is crazy. This is like saying that I must not make enough money to buy a house, because I can't afford half the houses in Raleigh. I am positive that I didn't have my "choice" of apartments when I went looking for apartments.
2nd: What do they mean by "standard quality rental housing units"?
3rd: They are taking a cost to live based in Raleigh, but not counting that you could live in Garner, Holly Springs, or Clayton. What a concept, you mean you might have to live "outside the city"?,,,, what a hardship.
4rd: How about a smaller apartment like an efficiency? O god forbid, you could get a 2 bedroom apartment and have a roommate. We're not saying put people on the streets here, but a 1 bedroom apartment with no roommate is alot better than I've lived for about 6 years of my life.
Their figures state that in the Raleigh-Durham-Chapel Hill area FMR Rents are:
1Br Rent of $662 and a 2Br Rent of $777.(pg 41)
For comparison a 1 minute search on the internet reveals the apartment I used to live in going for the price of "$575 for One bedroom apartments" in 2004. (And yes Lantern Square Apartments is even in the city limits of Raleigh to boot.)
And since I'm all steamed up already, lets look at that 30% of your gross income figure
They have a calculation that shows how much you have left to spend on food, car, and etc. after paying for taxes and your rent. Their example is for living in Austin, Texas. After FMR of $551 and the 30% figure, they arrive at $10.60/Hour or $1,837 a month.
They break this down as follows:
+ $1836.67 Total Gross Monthly - $ 416.01 Fed. Taxes, Soc Sec., Medicare sup * - $ 551.00 Housing Costs ----------- $ 783.34 Remaining for: Medical, Clothing, Food, Transportation and Telephone. *Minus $333.50 for Federal Income Tax, $137.85 for Social Security, and $32.24 for Medicare. The Federal Income Tax rate (15%) is based on the monthly deductions outline in the Internal Revenue Circular E, Employers' Tax Guide (Rev. Jan, 2000), Social Security is 6.2% of gross monthly income, and Medicare is 1.45% of gross monthly income (Total equals $503.58)Not withstanding that I DAMN WELL HOPE you could live on $783 after Taxes (I used to dream about having that much money a month), but their tax information is screaming DANGER, DANGER.
At $10.60 an hour you make $22,048 a year
$22,048 a year - personal standard deduction of $4,750 + $3,050 = $7,800
Means a taxable income of $14,248 is $1,791 in Federal Tax or $149 a month
(From the 1040EZ 2003)
$333.50 / 1836.67 monthly = 18.2% and totaly ignores the concept of the "standard deduction".
In summation, let's just say that I'm not very convinced.
Notes:
The tax table I used from 2003 may have different tax rates than was used by ULW website.
No adjustment was made for State Taxes.
The FMH Rent indicated that it included utilities, but I was unable to determine how.
02-03-2004