Tuesday, July 24, 2007

Minimum Wage Increases Today, but . . .

Good news … The Federal minimum wage is increasing today, for the first time in 10 years. Bad news … The Federal minimum wage still does not even come close to enough money to raise a family.

The Federal minimum wage increases today, from $5.15 per hour to $5.85 per hour. Based on the standard minimum wage work week of 35 hours, someone working 52 weeks a year would gross $10,647. Rarely will a minimum wage worker receive benefits. A two earner family, both working minimum wage jobs would earn $21,294 in gross earnings. Of course, FICA must be paid from all wages, reducing the couple’s net earnings to about $19,700, assuming no payment of income tax.

Unfortunately, the poverty line for a family of four in 2007 is $20,650 for the lower 48 states. Federal Register, Vol. 72, No. 15, January 24, 2007, pp. 3147–3148. So, two parents earning minimum wage, with two children, must still need to rely on additional government support programs.

Why, you may ask, is the Federal poverty line apparently wrong? The calculation is no longer accurate. In 1963, Mollie Orshansky, of the Social Security Administration, developed a simple formula to calculate the minimum income needed for a family: The cost of the U.S. Dept. of Agriculture economy food plan for a family multiplied by three. At the time, food was about one third of a family’s spending.

Orshansky’s formula may have been fairly accurate in 1963, but it doesn’t work in 2007. Due to increases in the cost of housing, health care, fuel, etc., food is now much less than one third of family’s expenses. If food accounts for as much as 20 percent of a family’s spending, the poverty line for a family of four would be $34,416. (Based on the Government’s poverty line for 2007). The poverty line is 40 percent too low.

By 2009, the minimum wage will be $7.25 per hour. The two minimum wage earner family would be grossing $26,390 or netting about $24,400, still well below a realistic poverty threshold.

The question remains . . . Who benefits from government poverty programs? Aren’t the government support assistance programs really support to employers who underpay their employees?

No comments: