The $7.25 Minimum Wage Can't Pay All the Bills in Any State

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  • It appears Democrats won't add a $15 federal minimum wage to the $1.9 trillion Covid relief bill, after legislative setbacks.
  • The current federal minimum wage, $7.25 an hour, isn't enough for full-time workers to pay bills in any state, according to living-wage data published by researchers at the Massachusetts Institute of Technology.
  • Low-paid workers may need to work extra jobs to pay bills and are often unable to save for emergencies.

After legislative setbacks, Democrats appear to have scrapped plans to add a $15 federal minimum wage to the $1.9 trillion Covid relief bill being weighed in Washington.

That means the current national wage floor — $7.25 an hour, or about $15,000 a year before tax — will likely remain in place for the short term.

The current minimum wage doesn't cover the cost of living for full-time workers in any U.S. state, according to cost-of-living data published by researchers at the Massachusetts Institute of Technology.

Twenty-one states used the federal minimum as of January this year, according to the Department of Labor. Many have adopted a higher pay scale. Some cities and businesses have done the same.

The current wage shortfall relative to the cost of living is generally greatest for workers in the South and Midwest.

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Even a pay floor of $15 an hour would still fall short of a "living wage" — the salary a person or family needs to cover their basic expenses — for many workers, according to MIT data.

"When people are screaming [that a $15 minimum wage] is such a radical proposition, the radical thing about it is, quite frankly, how low it would actually be," said Judy Conti, government affairs director at the National Employment Law Project, a worker advocacy group.

The cost of living would eclipse earnings for single adults in about half of states, even with $15 an hour. And the typical family of four couldn't afford the basics in any U.S. state. (This example assumes two adults, working full-time for minimum pay, with two children.)

The data weighs costs like food, childcare, health care, housing, transportation and other necessities. It doesn't include income from safety net programs for the poor.

Setback for Democrats

The Covid-19 pandemic has thrust the concept of a living wage into starker relief, as advocates claim frontline and essential workers (often women and people of color) are underpaid for their labor while putting their health at risk.

Democrats had aimed to raise the federal minimum wage to $15 as part of a pandemic aid package they're trying to pass by mid-March. The House passed the American Rescue Plan Act of 2021 on Saturday with a $15 minimum wage.

Democrats can pass the bill with a simple majority in the Senate — as opposed to the typical 60-vote threshold — using a process called budget reconciliation.

But they were dealt a blow last week when the Senate parliamentarian ruled a $15 minimum wage didn't meet the strict criteria for reconciliation. Senior party members eyed a workaround that would have taxed big companies paying a lesser wage. They quickly abandoned that "plan B" due to a time crunch.

Now some progressives are calling for President Joe Biden to override the parliamentarian's decision. Administration officials have said there are no plans to do so.

"If we don't overrule the Senate parliamentarian, we are condoning poverty wages for millions of Americans," said Rep. Ro Khanna, D-Calif. on Monday.

Democrats, including President Biden, have vowed to continue the fight for a $15 minimum wage if it's not ultimately included in the American Rescue Plan.

That plan would likely face significant opposition from Republicans. Some centrist Democrats have pushed back, too. Critics argue a national pay increase would lead businesses to cut jobs due to higher labor costs, potentially outweighing the benefits.

"It'd boost the income of some but lose income for others" said Rachel Greszler, an economist at the Heritage Foundation, a conservative think tank. "I don't think those are very good tradeoffs."

Where shortfalls are greatest

For single adults with no kids, current wage shortfalls relative to cost of living are largest in Georgia, Louisiana, New Hampshire, North Carolina, Pennsylvania South Carolina, Texas, Utah and Virginia, according to a CNBC analysis of living-wage data.

All pay $7.25 an hour. (Virginia recently passed a law to raise it later this year.)

Single adults working 40 hours a week in those areas can cover less than half their living expenses, on average, when earning the minimum wage, according to the analysis.

Families have an even harder time. In those same states — and a few others like Iowa, Kansas, Kentucky, Oklahoma, Wisconsin and Wyoming — parents with two kids and who earn the minimum wage can cover about a third of their living costs.

"People are not surviving on the minimum wage," said Amy Glasmeier, a professor of economic geography and regional planning at MIT, who created a database of regional living wages in 2004 and updates it annually.

Affording everyday items can be a challenge. For example, having a cell phone and broadband internet access — tightly linked to one's ability to get and hold a job in the digital age — costs about $120 a month, Glasmeier said. That's almost 10% of a low-wage earner's budget.

Low-paid workers may need to work extra jobs to pay bills and are often unable to save for emergencies or store away money to buy assets like a house, Glasmeier said.

And there may be spillover effects in areas like health, if people consistently buy low-cost, processed foods because that's all they can afford, she said.

Regional differences

Of course, state averages mask variation at more micro levels.

For example, it can cost less to live in suburban and rural areas than in cities, though there are exceptions, Glasmeier said.

Workers in certain occupations and industries are also often disadvantaged by regional variation in pay, she said. For example, food preparation jobs in rural areas pay much lower wages than those in cities — creating a larger shortfall for such workers in rural areas versus cities.

Even among metro areas, there are pronounced differences.

In San Francisco and San Jose, California, for example, a family of four would need around $130,000 a year ($31 an hour) to afford the basics. In Jackson, Mississippi, and Memphis, Tennessee, it's closer to $79,000 ($19 an hour), according to MIT data.

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