We’ve heard a lot about a Living Wage lately.
We all want to believe that everyone in America has access to the American dream, that if you work hard, you can own a home, send your children to decent schools and have a good quality of life.
How much does it take to buy the dream?
Let’s look at some calculations and see if we can determine what a “living wage” might be.
The current Federal minimum wage is $7.25 hour. Minimum wage arguments are outside the scope of this analysis, but no one could achieve the “dream” on this salary under any circumstance. This is not a “work/live” wage.
The highest minimum wage set at the state level is in Washington, D.C at $14.00.
Many cities and politicians propose that $15 per hour is a Living Wage. Living Wage is defined as the minimum income necessary for a worker to meet their basic needs. Basic needs are defined differently across nations, but let’s assume “basic” needs include housing, utilities, transportation costs, food, healthcare, connectivity costs and entertainment.
Let’s #dothemath on $15 per hour.
Scenario #1-4 Assumes the employee:
- works 40 hours per week (FTE)
- is single with no dependents, and lives alone in a one-bedroom apartment
- owns a vehicle and is making payments (insurance and maintenance apply)
- purchased a phone on contract with an unlimited text, talk and data plan
- has utilities that could include water, heating/cooling, electricity/gas, trash/recycling and Internet/cable
- goes out once per week to a variety of entertainments, i.e. movies, dinner with friends etc. and uses discounts/reduced costs/ride sharing as much as possible
- has one week of paid time off from the employer (PTO)
- has a high deductible catastrophic coverage health care plan from the employer
- carries some type of debt, including credit cards, school loans, etc.
- has no chronic health conditions
Scenario #1
Scenario #1 clearly isn’t going to work. No one can survive with a net operating loss of $1400 per month.
The Federal poverty level guideline for a one-person household per month is 1040.83.
With a $15 per hour full time job, no one would be eligible for any Federal or State subsidies.
These figures don’t get much better couples or families. Yes, the salaries go up, but so do the expenses. Two cars, two insurances, two student loan debt payments. When you start adding expenses for children like daycare, healthcare, college savings, and food, it’s very clear that $15 per hour won’t do much but reduce the subsidies that state and federal governments currently provide.
This is not a workable solution for a $15 per hour Living Wage.
Scenario #2 Reverse Engineering the Living Wage solution
| Gross Salary: $15 per hour x 40 hours per week | 600 |
| Less FICA (Social Security) 6.2% | 37 |
| Less Medicare 1.45% | 9 |
| Less Health Care premium | 23 |
| Less Avg state income tax rate 2.468% | 15 |
| Less Federal Income Tax | 31 |
| Net Salary | 486 |
| Monthly Net Salary | 1944 |
| Less Rent for a one-bedroom apartment | 910 |
| Less Utilities costs estimate @ 18% of rent | 253 |
| Car Sharing | |
| commuter rate in Washington D.C | |
| 20 mile drive each way/5 days a week | 559 |
| Less Cell phone bill (including phone) | 140 |
| Net Salary – monthly expenses sub-total | -82 |
| Less Minimum payments on $10,000 per of credit card debt | 200 |
| Less Entertainment budget 5% of monthly net income | 103 |
| Less Cost of food per month | 250 |
| Less Monthly student loan debt | 393 |
| Net Monthly Salary – monthly expenses | -865 |
Experts advise spending 30% of your gross income in rent, with 40% being more advisable in higher rent cities. We used 35% for Scenario #2.
Zipcar commuter rates would equate to less than owning your own car. No depreciation, no maintenance costs.
Scenario #2 isn’t going to work either. No one can survive with a net operating loss of $865 per month.
This is not a workable solution for a $15 per hour Living Wage.
Scenario #3 The Sharing Economy and Living Wages
| Gross Salary: $15 per hour x 40 hours per week | 600 |
| Less FICA (Social Security) 6.2% | 37 |
| Less Medicare 1.45% | 9 |
| Health Care premium | 23 |
| Avg state income tax rate 2.468% | 15 |
| Federal Income Tax | 31 |
| Net Salary | 486 |
| Monthly Net Salary | 1944 |
| Monthly Rent for a one-bedroom apartment | 700 |
| Utilities costs energy efficient apartment | 126 |
| Walk/bike/public transportation to work + car sharing | 237 |
| Cell phone bill (including phone) | 140 |
| Net Monthly Salary – monthly expenses sub-total | 740.68 |
| Minimum payments on $10,000 per of credit card debt | 200 |
| Entertainment budget 5% of monthly net income | 103 |
| Cost of food per month | 250 |
| Monthly student loan debt | 393 |
| Net Monthly Salary – monthly expenses | -206 |
*Zipcar car sharing rates include 10 hours of drive time per month
Miami Dade county Easy Card pass
Scenario #3 is getting us closer.
But we’re still short on $15 per hour wage.
Maybe Living Wage earners:
- could go out less or eat less?
- will never have savings or retirement plans?
- Can never retire?
- can never get sick?
- can never pay their high deductible if they do get sick?
- can never own a home?
- can never pay off their debt? )If you only pay minimum payments on your credit cards, you pay thousands of dollars in interest and three times (or more) the amount you originally charged, and it could take 20 or more years to pay off.)
Scenario #3 isn’t going to work either. No one can survive with a net operating loss of $200 per month.
This is not a workable solution for a $15 per hour Living Wage.
Let’s take a break.
We understand that it takes more than just a “wage” to define a good quality of life.
A Living Wage requires an entire economy to be successful.
- Affordable housing is a mandatory tenet of designing a Living Wage. There literally can not be one without the other.
- Transportation is a risk factor for designing a Living Wage. Living Wage earners must have short commute times, ride sharing options, accessible and efficient public transportation options and ideally, walk/bike to work options.
- Living Wage earners should have the same access to a quality life as any other wage earners and their wage should create a climate for self- sufficiency.
Scenario #4
| Gross Salary: $15 per hour x 40 hours per week | 600 |
| Less FICA (Social Security) 6.2% | 37 |
| Less Medicare 1.45% | 9 |
| Health Care premium | 23 |
| Avg state income tax rate 2.468% | 15 |
| Federal Income Tax | 31 |
| Net Salary | 486 |
| Monthly Net Salary | 1944 |
| Monthly Rent sharing/smaller home/tiny home/ADU | 550 |
| Shared utility costs in an energy efficient apartment | 65 |
| Walk/bike/public transportation to work + reduced car sharing | 125 |
| Cell phone bill (including phone) | 140 |
| Increase in take home pay from tax free contributions | 100 |
| Net Monthly Salary – monthly expenses sub-total | 1164 |
| Minimum payments on $10,000 per of credit card debt | 200 |
| Entertainment budget 5% of monthly net income | 103 |
| Cost of food per month | 250 |
| Monthly student loan debt | 393 |
| Net Monthly Salary – monthly expenses | 217 |
Scenario #4 Maybe this could work?
Ways to reduce Living Wage earners taxable income and increase take home pay
• Contributions to defined benefit programs, i.e. 401k/IRA
• Flexible Savings Accounts (FSA)
• Health Savings Accounts (HSA)
These ideas solve two problems: Living Wage earners build retirement savings and reduce taxable income.
Living Wage earners could further reduce their debt(s) by leveraging low interest loans and/or participating in loan forgiveness programs in public service. Free financial planning workshops on budgeting, building credit, etc. should be a part of the Living Wage earner package.
Access to affordable and preventative health care, wellness programs and mental health support is a critical tenet for Living Wage earners (it’s a tenet for everyone). Everyone should have access to a healthy environment, quality health services and the ability to be self-sufficient.
For more information on how to bring this plan to life, visit the Everything Cities™ design.
A Living Wage solution becomes exponentially more difficult for our most vulnerable population – single women with children. In the next series, we’ll take a look at how a Living Wage could be constructed for single parents with children.
This article is a little bit old, but the facts haven’t changed all that much about women, children and poverty.