Thursday, December 16, 2010

Let's Play With Some Numbers

While I was looking at the news yesterday, I came across this from the NY Times Economix blog, where the author threw in a rather standard right wing theme that cutting the minimum wage would help the economy:

In my view, all flavors of Keynesian economics ignore the many mechanisms that permit markets to adjust to changes in costs and benefits. Although a minimum wage cut would be an effective and revenue-free way of raising employment, the proposed payroll tax cut increases the benefits and reduces the costs of employment and will result in more employment among people earning less than $100,000 a year — even among those earning the minimum wage.

Not that this will penetrate the bubble around economists such as Mr Mulligan but let's play with some numbers here.

The current US Federal minimum wage is $7.25 per hour. Times 40 hours per week and 52 weeks gives us $15,080. Subtract out $348 for the non worked "big six" holidays (New Years Day, Memorial Day, July 4, Labor Day, Thanksgiving, Christmas) for $14, 732 (even though our hypothetical worker is quite likely to have to work on these days at a straight wage, I'm going to give them an unpaid day off.) Assuming the current tax bill with the 2% "payroll tax holiday" passes, this worker will still pay 5.65% for FICA and Medicare throughout the year which is another $832 to subtract leaving $13,900. We'll guesstimate this hypothetical worker will be hit with other withholding for "Taxes, benefits, health care" at 10% taking away $1,390 leaving $12,510.

$12,510 works out to be $1,042 and some change per month. This really isn't realistic as most minimum wage workers are paid either weekly or bi-weekly but we're just playing with numbers here just to get a sense of things.

I'm declaring that this worker is paying $400 per month in rent. Depending on where this person is living within the US, $400 per month for housing can provide anything from a decent studio or one bedroom to a falling apart, soon to be condemned slum. I'm also going to set the food and incidentals budget at $350 per month which assumes this person has some cooking skills and includes things like toilet paper, toiletries, paper towels as well as basic food.

At this point, the monthly income is down to $292 per month and I have not accounted for a car, car insurance, gas, upkeep, clothing, dental or eye care, or the smallest occasional entertainment. And this hypothetical person is single with no dependents at all. I'm getting lazy so won't go looking but I'd guess that there are more people working part time minimum wage jobs than there are people working full time minimum wage. My WAG would be that businesses would find it cheaper to hire two or three or four or five people and declare them all part time than it would be to hire 2 or 3 people officially as full time but don't have anything other than a life time of watching businesses in operation to back this up.

A few links that might aid in some understanding:
Federal Minimum Wage Rates from 1955 to 2009
Bureau of Labor Statistics report Characteristics of Minimum Wage Workers 2002
Charts showing Minimum Wage history of nominal versus real purchasing, Minimum Wage versus the poverty line, and Minimum Wage as per cent of total work force

And because I can:


  1. It's literally impossible to thrive on this kind of income. You can survive, but only so long as your health is in optimum condition and you have the opportunity to rely on things like public transit. Most people on minimum wage aren't just supporting themselves. There's often children involved, or in my case an elderly parent. Education becomes such a premium that you cannot better yourself. It's harder than it should be to create a decent living for yourself just so that you don't have to rely on any form of public assistance.

    1. I totally agree which is why I wrote this post in an attempt to call bullsh*t on the folks advocating slashing the minimum wage.