Commentary on what minimum wage would buy
May 28th, 2007 | by
mbhunter |
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Michael over at Money Musings posted last week on what the minimum wage would buy in 1973 and in 2007. A dozen items from a first-class stamp all the way up to a Dodge Charger were considered, and the number of hours a minimum-wage worker would have to work to purchase the item were tallied up and compared. A nice bit of research!
Four of the 12 items were more expensive in 2007 as compared with 1973: the Charger (a 133% increase), gasoline (158% increase), a Barbie Doll (132%), and a stamp (a 60% increase). The garage door opener, the food disposer, the TV, and crock pot, and eggs were quite a bit cheaper, with the TV being only a seventh as expensive in terms of hours worked in 2007 as in 1973.
The timing of this post is important. This week, as part of a war spending bill, Congress approved a minimum wage hike to $7.25 from $5.15, more than a 40% increase. If this is signed into law, minimum wage workers will not have to work as long for these items, though the four “expensive” items are still more expensive than they were in 1973.
Michael notes that the quality isn’t quite what it used to be, so the cheap items might just be, well, cheaper. The exception might be the TV; electronics have generally been delivering more bang for the buck each year for quite a while, so that advance is probably real.
The one sore point is the cost of getting to work — buying a car and fueling it. This is a non-negotiable cost for many people, it’s more expensive than it was thirty years ago, and it’s definitely going up. These kinds of jobs one usually has to “go to work” rather than having the ability to telecommute, so unless there is public transportation available, the transportation costs for these jobs are pretty fixed and take up a big chunk of the worker’s pay. How this will play out as gas goes up further, I don’t know. What happens when your workers need to get to work, but can’t afford it? As an employer, you can hire someone else I suppose — it’s not the employer’s problem at that point, but the employee’s — but the new worker you hire may have the same problem later. Where does it end?
I think these employee difficulties will give rise to higher prices, just like higher prices for fuel trickle down into everything else. If a good number of the people who would work minimum-wage jobs can’t, then all of the businesses who hire minimum-wage workers will have to raise their prices to retain the good ones. Fewer available workers mean higher wages — supply and demand. These extra costs will be passed on to the customers.
Initially, though, some businesses will have to cut back on employees because of the extra cost. Those that were just scraping by paying their workers $5.15 an hour won’t be able to cut the same checks at $7.25/hour. Which is bad for some of the workers.
Short version: I’m glad that minimum-wage workers will be able to get more for their time if this legislation is signed into law, and that they’ll have a slightly easier time affording transportation to work. I also hope that employers will be able to absorb their extra costs to keep as many of them as possible on the payroll so they can all get paid more.
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14 Responses to “Commentary on what minimum wage would buy”
By Chris on May 28, 2007 | Reply
One thing I disagree on is the Charger. It’s almost impossible to compare same-name autos now to 1973 because of all the added technology that’s been driving the price up. Was a 1973 Charger within reason for a minimum wage worker? Possibly, but certainly no one making minimum wage today would be buying a brand new Dodge Charger. Unlike fridges or eggs, the two cars are completely different other than sharing the same name.
By r on May 28, 2007 | Reply
I wish daycare were on the list (although after reading that the 70’s prices came from a newspaper, I can see why it wasn’t). In my experience, it’s the #1 thing determining whether you can come out ahead with your minimum wage job.
This issue also intersects with the car vs public transit issue: although in many if not most places there are busses etc available (and I’ve visited friends in small towns in the south who were shocked to see me show up on a city bus - there’s more than you realize, sometimes!), they just take longer to use. For me, a bookworm with no children yet and working in academia, that’s fine - I love the extra time to read. But if you’re trying to get from work to you kids’ daycare to the grocery store and then home… you’re paying for that extra 45-90min that a bus can add sometimes, literally, often.
By flifla on May 28, 2007 | Reply
I wish I had the link for a reference to prove my statement below, but I did read that a person making minimum wage now cannot afford to pay rent for any housing in any city. 5.15 per hour is 824. per month. Take out 20% in taxes: 659.92 per month. I believe that if two people can share an apartment or garage, they can pay rent and buy food. Of course this doesn’t include expenses for luxury items (and yes, a car IS a luxury item) but I still think to live on minimum wage is POSSIBLE. Free health care? This is not a right, but a privelige. Study your American history and see what “the good old days” were about. Hunger, disease, poverty. Do you know anyone these days, that is hungry? Response to the post about child care: what happened to extended family to lend a hand?
By Michael on May 28, 2007 | Reply
Two items whose prices I’d really like to be able to compare are housing and medical expenses. Now I can throw childcare in there, too. That’d be a telling statistic.
About the best I can do (without making a trip to the library and scouring thru the microfiche) is to plow through the classified ads in the paper I have, and see what turns up (regarding housing and childcare).
Regarding the car issue, yeah, it’s next-to-impossible to make decent comparisons across generations of autos. Was a Charger an entry-level car in 1973? I dunno; I was 2 years old. I don’t think it’s entry-level now, but then, getting financed for something like that often means you need nothing more than a cosigner (read: fool) and a shadow.
By Rob on May 29, 2007 | Reply
Since most minimum wage earners are part timers or teenagers, I don’t think much of this is very relevant. I’m sure they can get a break from Dad on the rent if they can’t make it some months.
By David on May 30, 2007 | Reply
Raising the minimum wage is a terrible idea, and will hurt lower income workers with no skills.
“I also hope that employers will be able to absorb their extra costs…”
I’m sorry, but they won’t. Employers have families and need to make money too. They are not going to just let their labor expenses increase by 40 percent out of the goodness of their heart. No “absorbing” will occur. They will either have to raise prices, or find a way to have fewer employees do more work.
A government mandated minimum wage cannot force an employer to pay someone more than they are worth. If they cannot get 7.25 an hour worth of productivity and benefit out of someone, they simply will not employee that person. This means that the people with low skills, who are worth less than 7.25 an hour, will not be able to get jobs.
In any case, it’s not as big of an issue as people make it out to be. Only one in five workers earning the minimum wage live in families with household earnings below the poverty line. There are 75.6 million workers that are paid on an hourly basis, 1.9 million of which earn the minimum wage. More than half of them are under 25 and about thirty percent are between 16 and 19. Keep in mind that included in this number, are people like restaurant wait staff, who make a lot more than 5.15 an hour from tips. A bartender at an upscale restaurant for instance, can certainly clear 75,000 a year. Market prices have caused wages to increase on their own, the way it should happen. Mcdonalds doesn’t even pay the minimum wage anymore.
Furthermore, the minimum wage is really just a starting point for those entering the workforce. More valuable than the 5.15 an hour are the skills and experience they will gain. This is evident by the fact that more than two thirds of minimum wage earners receive a raise within one year. In other words, they are not doomed to a life of earning the federally mandated minimum, “sharing an apartment or garage [so] they can pay rent and buy food.”
By David on May 30, 2007 | Reply
Oh and I forgot that the statistics I used came from the National Bureau of Labor Statistics.
By Dus10 on Jun 1, 2007 | Reply
I have to agree with David, this is a silly move all around that has caught a couple of suckers, here. Taking the numbers form the CATO institute, only about 1.5% of all minimum wage earners are in a situation where there wages are for supporting living conditions. Most are teenagers, people working second jobs, or non-primary breadwinners. Besides raising the minimum wage is a shell game.
I think it is laughable to watch people who claim to be financially astute claim that raising the minimum wage actually benefits anyone. The market will just let it reach an equilibrium via inflation, and we will be back where we are today.
Besides, the market is already doing a great job at determining wage… hardly anyone even makes the minimum wage to begin with.
The truth is, if you start out working a minimum wage job, and you haven’t received a raise in a few months, probably aren’t providing value that is worth paying the minimum wage. It is ridiculously easy to get raises in those types of jobs… just show up on time and do a halfway decent job. Heck, even teenagers can manage that.