Estimating a Minimum Wage

I. Justifying the Minimum Wage

Unlike some conservatives, the idea of a minimum wage does not particularly concern me.  I cannot say with any certainty whether it does in fact accomplish its goals, but in the abstract it is simple to justify.  The argument goes something like this: it is unjust for an employer to pay an employee – at least, not one who is not socially expected to do work for someone else – less than they need to live on.  I am trying to phrase this carefully; but the fact of the matter is that in the modern American context we presume that a person working forty hours every week should be making enough money to support himself, if he is paid justly.

It is obvious enough that it would be impractical to have some bureau inspect every business where an employee might complain about their pay; a minimum wage, done justly, is nothing more than a shorthand way of saying, “Here’s how much you need to be paying your employees to be dealing justly with them”.  Whether it actually achieves this object I have no way of ascertaining – I know some consider that it does not – but the logic is clear and sensible.

II. The “Minimum” Part

It is easier, according to general human consensus, to flip burgers than it is to design a seaworthy oil tanker.  It is therefore not surprising to find that wages vary among professions – sometimes drastically.  But the minimum wage, I take it, is not (or should not be) an attempt to “fix” this somehow; it’s a baseline.  That baseline should be as near the cost of basic necessities as possible; I’m inclined to say it should, if an approximation is necessary, err on the low side, so as to not add artificial constraints to the market; on the other hand, the argument that it should err on the high side in consideration of the worker’s humanity is one that bears thoughtful consideration.  I don’t pretend to answer the question exactly – but the goal is to get it at “cost of living”, or as close as plausible.

Another limitation of a “minimum” wage is that it must be calibrated to the needs of a single worker – that being the minimum number of people an income needs to support.  (The question of the so-called “living wage” or “family wage” I have no idea how to address.  The rationale there is less obviously defensible, seeming to fall into the, “Wouldn’t it be great if… ?” category, but I’m not sure it’s a bad thing, either.)

III. So How Much Money is That, Anyway?

Here’s where things get complicated.  What exactly is a “minimum” amount to live on?  For the sake of argument, I’m going to assume we want decent housing, a non-terrible standard of living, and so forth.  I’m going to take my experience in DC as a starting place, and I’m going to do a lot of estimating.

Housing: remembering that I’m talking about minimum, not ideal, you’re probably sharing a place; you can do that for $500/month or less, even in DC, if you look around a little.

Transportation: you need to get to work.  I’m going to call this $200/month.  Using public transportation is, I think, a good bit less than this; it’s my estimate for gas + insurance for something that runs.

Being informed: call this a smartphone, or just a phone and internet.  You can get it for less, but we’ll say $100/month.

Utilities: $50/month.  You can probably do this living alone most of the year; sharing a place, definitely.

Food: I’m going to give you $200/month.  I’m pretty sure you don’t need that much; but it’s a number that I’m pretty is more than I spend (especially if you take out things like potato chips and wine) and I don’t feel like trying to prove something lower.

Health: Based on my own insurance, and in the service of round numbers, I’m putting this at $150/month.

All of this – the essentials – adds up to living on $1,200/month.  That’s $14,400/year.  Because I’m making the math easier, let’s assume that you get two weeks to not work; so, working 40 hrs/wk for 50 weeks, you would be making $7.20/hr.

IV. How Does This Compare to Reality?

Much to my surprise, this matches the actual minimum wage pretty closely.  The Federal minimum wage is currently $7.25/hr.  Not accounting for all the exceptions like student workers, tipped labor, etc. which I’m not even going to try to comprehend this briefly.

Of course, there’s a caveat to this.  Taxes are being withheld from these wages.  Social Security and Medicare taxes add up to 5.65% off the top.  Now, I can’t figure out how exactly the taxes and deductions work out.  Wikipedia seems to think it comes out to about 2% once everything’s calculated.  To get that to work, and still hit my $7.20/hr number, the actual wage should be $7.35/hr.  (Though if there were a way to make the paperwork less onerous for everybody…)  So I’m not really complaining about the $7.25, since that also fits my, “Aim low, if anything,” guess of what policy should look like.  Though I still haven’t figured in state taxes (though why an income that’s a minimum to live on is being taxed in the first place is a bit of a problem).

Except for one thing: there’s more to the country than DC.  There are more expensive places to live (New York City?), but I’d guess that most places in most of the country are actually less expensive.  And a Federal wage should reflect that – but a minimum wage for the country may not actually be a good idea, given the disparity of conditions.

V. What it Means

I’m not sure.  This is a thought-experiment; I’m sure I’m leaving out variables.  I’m not trying to say, “Well, as you pay your employees $7.50/hr, you’re a righteous dude!”  I’ve been fortunate enough to do very little minimum wage work; I’ve had supportive parents and churches, so I’m not speaking from real experience here.  (Though the summer I was unemployed in DC, I set my monthly budget at not-more-than-$1000/month, and did it – it was a round number, but it’s also context for this experiment.)  I’m not trying to make out that living on minimum wage is really an okay thing to ask of people.  Like I said in the beginning, it’s a minimum – an if-you’re-paying-people-this-you’re-real-close-to-the-bad-guy-line wage.  But it also doesn’t look, to me, like it needs to be raised any time soon.