Who earns minimum wage?

The Bureau of Labor Statistics (BLS) reports that, at last count, 73.9 million American workers (59% of the working population) were paid hourly. Of these, 3.9 million were paid below the Federal minimum wage of $7.25 an hour.  This is 5.3% of hourly workers.

I can’t find accurate statistics on how many workers are paid less than the San Francisco minimum wage of $10.55. Reich, Hall and Hsu (1999) from the Bay Area Living Wage Research Group estimate that 32% of the workers in the bay area earn less than $11 per hour, but this statistic is not sourced and seems high.

Anyway, it’s obviously considerably more than 5.3%. And if what I’m doing is hard, surviving on $7.25 an hour must be practically impossible – at least in a major urban area.

But who earns minimum wage?

This BLS can help us again here:

·         They tend to be young and female: about 50% are below age 25. 67% are women.

·         They are likely to live in the South: the states with the most minimum wage earners are Texas (number one by a huge margin), Florida and Georgia.

·         60% work in service industries, the majority in food preparation and serving (some of these may receive tips)

·         The majority have graduated high school and have some form of college education but not a bachelor’s degree or higher

 

How does the minimum wage relate to the poverty line?

The US government began setting a “poverty line” in the 1960’s.  Based on the heuristic that families spend about a third of their income on food, the poverty line was set at three times the cost of a “budget food plan” that was developed by the US department of agriculture.

The federal government defines a family with two adults and two children as living in poverty if its household income is less than $22,113.  If you crunch the numbers, 28% of workers in the US (source: Economic policy institute) get paid at or below poverty line levels. But clearly it is rather more difficult to support a family of four on this income in San Francisco than it is in rural Arkansas.

I was interested in a 2011 study performed by Lucas Manfield and Christopher Wimer at Stanford, in which they tried to estimate more accurate poverty thresholds for the city of San Francisco.  They estimate that San Francisco poverty thresholds should be about 50% higher than the national level, mainly due to higher housing costs (see table below).

   

Table    1a:    San    Francisco    Threshold   Calculation
	Renter/Mortgage	No   Mortgage
National  SPM    Threshold	$24,880	$20,426
Shelter+Utilities    Portion	$12,291	$8,477
SF  Housing    Cost  Inflator	1.94	1.08
SF   Threshold	$36,433	$21,104

    

Source: Manfield, Wimer (2011), Stanford Center for the study of poverty and inequality

What is an appropriate “living wage” for San Francisco?

The concept of a “living wage” is slightly different from a poverty threshold wage.  The idea is that workers should be able to support themselves and their families at a basic self-sufficiency standard on the earnings they receive from their employers.  Some states and cities have laws that require the payment of living wages to certain workers, and this is particularly true for employers that sign contract with government agencies. 

Reich, Hall and Hsu (1999) estimated this as $14 per hour in 1999 for San Francisco (note that this is for one worker and one dependent, not a family of four).  Inflation, particularly in housing costs, will have taken this much higher now.  Indeed, more modern estimates suggest a US-wide living wage of $13.10, which roughly scales (using Manfield and Wilmer’s multiple) to a $19.20 living wage for San Francisco.

My personal experience is that it is very hard for one person – not a family of two or a family of four – to live on $10.55 an hour in San Francisco.  I do not know how anybody lives on the federal minimum wage of $7.25, let alone a family.  Estimates of a “living wage” for a family in San Francisco range between $15 and $20. This still seems low to me, but would appear to allow some quality of life beyond mere subsistence.

I want to write later about the controversy surrounding minimum wage laws, and the arguments against them, but for now chew on these numbers and consider the sacrifices that would have to be made to raise a family in these circumstances.