Minimum wage doesn’t work
March 20th, 2008 | Living
I was a little bored this afternoon, and I decided to see how long I could hold out if I were forced to work for minimum wage while keeping my current standard of living. Big surprise, it turns out I would be eating into my emergency fund almost as soon as I took the “pay cut”. So that got me wondering, just how far do you have to stretch a dollar to live off of minimum wage in today’s economy? I crunched some numbers to see just difficult it is to get by when you’re forced to live off a low income.
Ground rules
For the purpose of this exercise, I’m going to pretend I’m single (sorry, sweetie!) and in good health. For my location, I randomly chose Hartford, CT. Minimum wage in Connecticut is currently $7.65 an hour. Forty hours a week at $7.65 an hour works out to $306 a week, or roughly $1224 a month. So do you think it’s possible to put a roof over your head, feed yourself, buy clothing and find transport for a little over a grand a month? Let’s find out.
Housing
Finding housing is a challenge. I’ll be honest, I pay more in rent per month than what minimum wage pays each month. So I was surprised when I found a studio apartment for $395, which includes heat. When you’re living in New England, heat included with your rent is a huge deal. But that still leaves electric ($50), phone ($30), and water ($20). So with housing out of the way, how much does that leave us for the rest of the month?
$1,224 (Income)
$495 - (Housing)
$729
Food
Figuring out what you should spend on food when money is tight is tough. Right off the bat, eating out is out of the question. But what do you spend on groceries? One the one hand, you can eat beans and rice every night, or you can try and spice up your meals with vegetables and meat. Ground beef and chicken is still cheap, and large bags of frozen vegetables go a long way. I would make a conservative estimate that groceries for absolute bare necessities would run about $30 a week, or about $120 a month.
$729 (Remainder)
$120 - (Food)
$609
Clothing
I’ll be realistic here. Most people earning minimum wage probably don’t go on shopping sprees every month. But that doesn’t stop people from wearing through shoes, pants, shirts, sweaters, and jackets. I’m going to set aside an extremely conservative $25 a month to spend on clothing in a consignment shop.
$609 (Remainder)
$50 - (Clothing)
$559
Transportation
Transportation is tricky. If you live in a large enough metro area, you can probably get by without a car and simply rely on the bus or subway to get around. But if you live in a more rural area (such as our example Hartford, CT), you’re going to need a car. I would hesitate to take on a car payment at this level of income, but the reality is that if you are earning around $14,000 a year, you probably don’t have any savings to purchase a car outright. Most likely, you’ll drive a high mileage car that you’re paying around $100 a month in loan payments. Tack on insurance ($20 a month), and gas ($200 a month), and you’re looking at $320 a month for transportation.
$559(Remainder)
$320 - (Transportation)
$239
Miscellaneous
Now that we have the four core requirements to surviving on your own, what about miscellaneous expenses? Little nickel and dime expenses add up, and they add up quick. It doesn’t take much to spend your $239 remainder every month on non-budgeted expenses. What happens if your car breaks down? Or if you need to see a doctor? Even buying supplies for your home can wipe out your finances. And forget about spending cash on entertainment, the money just isn’t there for that.
Living on minimum wage is living below the line of poverty. While raising the minimum wage would theoretically improve the quality of life for many, it’s a double edged sword. If you raise the minimum amount employers can pay employees, stores and companies will have to raise the prices of their goods and services to compensate. So effectively, an increase in minimum wage would erase workers wages through greater expenses.
Minimum wage doesn’t work, but how do we fix it?
According to your post - you made it work! I think a lot of it depends on finding that cheap rent… and I’d like to see the place that I’d live in at that price. And $30 a week on groceries is real tight… so I think you’re right, minimum wage doesn’t work… especially when a phone is pretty much a necessity these days as well.
I actually believe that there shouldn’t be a minimum wage. You should get paid what you’re worth… if you’re worth $2 an hour or if you’re worth $20 an hour. Let the market decide.
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It only works if you can make it through the month without any unexpected expenses. When you’re making that little, you probably won’t have enough in savings to cover something like that. You are then literally living paycheck to paycheck.
I highly recommend you check out the book ”
Nickel and Dimed: On (Not) Getting By in America” by Barbara Ehrenreich. She explores this issue first hand in various locations throughout the US and gives accounts of her experiences trying to make each work. It was a very eye opening book to me and one that actually got me interested more in that aspect of Personal Finance.
Cinder’s last blog post..Investing time in a Friend’s Small Business
I watched part of a documentary on this. A husband and wife both worked minimum wage for a year and told their story. It would be interesting to watch all the way though.
You would have a little more money if you were married and living in that same studio if you were both working. I guess that is how people make it work, by living together and sharing expenses.
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Yeah, if you could live with a bunch of roommates to split up rent and utilities, it could possibly work for a while. I’d hope that while someone was living on minimum wage, he/she was doing everything possible to acquire skills to do something else in the future. Something that pays better, of course.
I know a lot of grad students who are living on approximately as much as your hypothetical minimum wage earner. Some do have advantages like remaining on their parents’ health insurance plans. By living with roommates in apartments close enough to campus to walk or ride the bus most days, they can cut housing and gasoline expenses.
None of them want to live like this forever, but it is manageable for a few years. Grad students do have the advantage of knowing their situation is temporary.
E.C.’s last blog post..Layoffs hit home
@ Cinder: Thanks for mentioning the book. I was at Barnes and Noble this afternoon and picked it up. I’ll give it a read this week and let you know what I think.
I should have stressed this more in my post, but even though I came up $200 ahead over the course of the month, my budget leaves many gaping holes. As soon as there is an emergency or other unexpected expense, my budget is broken and I’ll be in the red. If you’re on your own and trying to get by, minimum wage simply does not work.
I agree with JB - I don’t think I’d go so far as to stay there should be no minimum wage, but I do think everyone should be paid what they are worth and for the most part that’s the way it works. By continuing to increase minimum wage I think we are doing a disservice to those trying to get ahead and only making slightly above minimum wage can’t afford services and products as easily.
I’m going to say something that I’m sure it going to get me crucified but I think it should be said none the less — PEOPLE MAKING MINIMUM WAGE WANT TO MAKE MINIMUM WAGE.
Hear me out —
I think if you want to get ahead and not make minimum wage you can succeed - it will take some time but its possible.
I work in the construction industry - an industry ripe with blue collar workers and almost everyone who does the physical labor in the industry starts out making minimum wage but if they are decent and put forth any effort they don’t stay for long making minimum wage - its the ones who don’t care or don’t want to get ahead and continue making minimum wage.
One of the many things I do is hire people for our crew - we’re the GC so our crew consists of about 4 labors and carpenters lead by a foreman that mainly do clean up. We get our hiring pool from a day labor source that pays them minimum wage - if we like them and they show up every day and put in a fulls day worth of work after a week or two we offer them a job with a huge raise and they start making $10/hr. If they continue to do well in a year or two they can go from labor to carpenter, then from carpenter to lead carpenter to foreman, to party chief, to assistant superintendent etc etc to eventually through a course of a career of 30 years become salaried employees and be making close to $100k a year if they continue to show aptitudes and continue to be hard workers. Now no not everyone makes it that far - most end up not making it much beyond foreman but that pays about $25/hr which I think you could easily raise a family on.
I realize not everyone is in the construction industry but I can’t image it wouldn’t be the same if you went and got a minimum wage job at McDonald’s - after year of showing up on time and working hard I can’t image you wouldn’t get a raise, and then as the years go by get promoted to head cook (or whatever their promotions are) and then eventually become manager and maybe even beyond to the corporate offices like you can in construction.
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Future Millionaire-
You have a point. Although there are some people who, for a variety of reasons, are truly incapable of working their way up, able bodied, mentally competent, and determined people can often rise above minimum wage. I had a classmate in high school who began working at McDonald’s at 15. When we were seniors, she was assistant manager, and as soon as she graduated she was moved up to manager.
That probably isn’t a career most of us aspire to, and it likely doesn’t provide a comfortable middle class lifestyle for a family. It does, however, pay quite a bit more than the average burger flipper gets.
E.C.’s last blog post..Layoffs hit home
I wonder how many people actually earn minimum wage. Around here (knoxville, tn, not exactly NYC) very few people actually do. My niece recently got a job at a department store for $2.00 above minimum wage with no experience.
For the person who recommended “Nickel and Dimed: On (Not) Getting By in America” by Barbara Ehrenreich”, may I recommend Scratch Beginnings: Me, $25, and the Search for the American Dream? It is written by a guy who wanted to explore this topic. He was a recent college grad who moved to a new town with $25, a sleeping bag and the clothes on his back. He did not use his degree, contacts or credit rating. His goal was to have a furnished apartment, working vehicle and $1500 in the bank in one year. He acknowledges up front that he may not be typical and this was solely about his personal experience. I finished this book in 2 days (after working 10-12 hour days).
FYI, I have only a high school education (dropped out of college with a father willing to pay for everything) and now earn $66,000 (base salary) a year. I entered the Air Force at 21 and received great training.
[…] Copper presents Minimum wage doesn’t work: “So do you think it’s possible to put a roof over your head, feed yourself, buy clothing […]
Hi Seb,
I just wanted to let you know that I enjoyed your article and I plan on featuring it in my Friday Round Up post tomorrow on my site.
All the best,
Peter
[…] doing a great job hosting this week’s Carnival of Personal Finance (and for selecting my post Minimum wage doesn’t work as an editor’s pick). « Keep your car and wallet happy with gas credit […]
[…] Seb from Pinching Copper shows us that Minimum, wage doesn't work, and says, "Just how far do you have to stretch a dollar to live off of minimum wage in […]
I agree that Minimum wage does not work! I think its bull crap for someone to have to work all day everyday and not even have enough money to survive without stressing and worrying how they are going to pay for everything. If you work hard, you should get paid for what you are worth! NO LESS!!!