Mimimum Wage and Paying the Rent

In the United States, over 3 million people work at or below the federal minimum wage of $7.25.   This represents almost 3% of all wage and salary workers. 

            The people earning minimum wage are, by-in-large, whom you would think they are.  Fifty percent of them are 16 to 24 years old, and half that number are teenagers.  Over 75% of them are white, and half that number are women.  Finally, 64% are part-time workers. They work in the jobs you would expect: food prep, cleaning, personal care, sales, manual and unskilled labor. 

The debate over raising the federal minimum wage is a constant of politics.  Recently, however, I saw a new approach to the discussion.  I read an article comparing what the minimum wage would have to be to provide monthly income to rent an average two-bedroom home in each state.    There were 17 states at the high end of this list. 

The most expensive states were Hawaii and California where it takes a minimum wage at $35 and $30 respectively to rent a modest house.  The low end was represented by Kentucky and Arkansas in the $13 range.  Some of the states needing minimum wages in the $20’s and $30’s were predictable.  If you live in Alaska or Hawaii you are in a high cost of living state by virtue of your isolation.  New York, New Jersey, Massachusetts and Connecticut are on the list, so are California and Washington.  The Midwest is sporadically represented, and, with the exception of Virginia and Florida, the south is absent from that top tier. 

There are many factors that contribute to a state’s costs of living.  Geography, climate, and population are all important, but these are not controllable.  My question was what governmental (i.e. discretionary) factors contribute to cost of living. 

First, I chose to disregard both Hawaii and Alaska because of the obvious geographic exceptions.  Then I looked at five factors, using the top quintile in each one. 

1)      The hourly minimum wage it would need to rent an average 2-bedroom home,

2)     The minimum wage currently applicable in that state

3)     The top income tax rate in that state

4)     The property tax rate in that state

5)     The state sales tax

The following is how the costliest states also compare in other tax-based categories. 

1)      Maryland and Connecticut are in the top of all five categories;

2)     California and New York are in the top of four categories (and near the top of each);

3)     Massachusetts, New Jersey and Vermont are also in the top quintile of four categories;

4)     Washington appears at the top of three categories, and

5)     Illinois and Florida are in two.

Personally, I would vote in favor of increasing the minimum wage to $15/hour.  But, and this is the part too often left out of the conversation, I would also make sure the public understands that this would reduce employment.  If you are paying more for employees you must and will select the smart, disciplined, hard-working ones that give you more bang for the buck. 

Second, I would make it clear that raising the minimum wage does nothing to save people from the voracious tax appetite of a state that—given several different ways to tax its people—consistently chooses all of them!  It you live in a state with high income taxes, property taxes and sales taxes you better love what they are doing with the money because every product or service you buy will reflect those taxes.   

Make yourself worth more than the minimum and keep the faith.