And the Economic Gap Widens: Capitalism, Demand, and the Bare Minimum for American Workers

In the midst of the current deep recession of the American economy, many workers have been forced to take jobs far below their levels of qualification, thereby widening an already massive economic gap. Many people have opted to work in entry level positions in order to continue making house payments and putting food on the table for their families. Some have taken dramatic pay cuts after being laid off from jobs they had for years or even decades. Of course, these entry level jobs are often unskilled and require little or no education, which allows employers to offer minimal compensation to the people who fill them.

In times such as these, rarely do businesses pay any more than the absolute minimum they are required to pay by the government. Why would they? A business has no conscience. A business cares only about making money. If 100 applicants seek employment at the bare minimum, there is absolutely no economic incentive to offer more money. Capitalism argues that demand drives value. If people “demand” these jobs at a low pay rate, then everything must be okay. This is obviously a load of crap. People “demand” these jobs, because they have absolutely no other option. No one wants to work in exchange for compensation at or below the poverty level. If a person has mouths to feed, he will accept any position available in order to do so. He has no negotiating power. The law of demand is not applicable to the job market for this reason.

Economic Gap

Now, if someone is “lucky” enough to land one of these menial positions which our current economy has made so scarce, he will likely be paid the minimum wage. Oh, the minimum wage. The dollar value that our government has set in exchange for an hour of human life. As of 2009, the federal government has set the minimum wage at $7.25/hr.

Let’s talk about $7.25 an hour. In 2011 America. How far will this minimum wage go for an average American? To begin with, I would like to break down the budget of a worker with a slightly higher wage. Say, $10/hr, which is actually 38% more than the current minimum wage of $7.25. But, just for the sake of argument, let’s start with $10. We’ll assume that this person has done “well” for himself and landed a “good” paying job.

Take a look at this mock budget:

$10/hr @40/wk = $400/wk

$20800/yr.

  • This annual income places our hypothetical employee in the 15% tax bracket. Factor in Social Security and local taxes and we can figure that about 22% in taxes come off the top of this worker’s paycheck. Do the math with your own paycheck if you want. I have. Twenty-two percent is a pretty good estimate.

So, that means:

$400 -22% = $312/wk net pay after taxes, or

$1248/mo net take home pay

Now, let’s make a budget for our worker. I’m talking a bare minimum, no frills, no entertainment budget. This guy lives in a crappy one-bedroom and he never even goes to the movies.

  1. Housing/Utilities = No less than $600
  2. Health Insurance = No less than $100
  3. Car Insurance = $75
  4. Cell Phone = $50
  5. Food/Gas (bare minimum) = $70/wk ($280/mo)

TOTAL = $1105

Leftover = $143/mo

At this point, our poor guy has no cable, no Netflix, no entertainment money, no vacations. He better hope he doesn’t have car trouble, or a major illness. This also assumes the individual is completely debt-free and has no credit card payments. Throw a credit card in the mix and that $143 surplus is gone. Obviously, this person has no possible way to ever take any college courses (without borrowing money, and taking on a new monthly expense). He also has no hope of ever saving anything. Buying a home is completely out of the question.

What if he has a child to support? It just isn’t possible. And this is someone who is making far beyond the minimum wage. He’s doing “good” for himself at 10 bucks an hour.

Making Sense of the Economic Gap Math

Now for the actual current minimum wage, which is $7.25/hr. Let’s think about that for a minute.

$7.25/hr @ 40/wk = $290. TWO HUNDRED AND NINETY DOLLARS.

Minus the 22% for taxes = $226.20 net

x 4 weeks = $905 monthly net after taxes

Returning to our previous budget model, you can see that the current minimum wage leaves this person in the hole $200 every month. Considering the fact the bills in this budget are fixed and every possible luxury item has already been factored out, the only place left to cut is in the weekly food/gas allotment. In order to make the math work, a person working FULL-TIME at minimum wage would have 20 bucks a week for food, gas, and anything/everything else he needs to do that week. Is that possible? If he only (somehow miraculously) has to put $8 worth of gas a week in his car, then he will be left with $12/wk for food. TWO dollars a day. $2. Tell me how in hell this is possible. Remember, this isn’t just for a couple weeks. This is every single week.

This is the reality of minimum wage.

Our government deems this to be completely acceptable. What if this guy has kids? How does that work? “Whelp, we’re paying him minimum wage, so he should be fine. Needs to quit whining. He can get a second job if necessary.” Bull. Shit. If this is the case, why do we call a 40-hour week “full-time?” The work week was capped at 40 hours for a reason.

No employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, and who in such workweek is brought within the purview of this subsection by the amendments made to this chapter by the Fair Labor Standards Amendments of 1966 . . . for a workweek longer than forty hours . . . unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed. (US Labor Code, Title 29)

In other words, a 40-hour week should be enough. At least enough to survive and pay bills for crying out loud! We’re not even asking for anything special. If a person works 40 hours in a week, he has done all that is required of him. He has made his contribution, and he should be able to pay his bills and put a little money away on the income he receives.

Here’s another popular argument against raising the minimum wage: “Ahem, well, most adults who have families earn more than minimum wage. The minimum is designed for teenagers and college students.” Fine, but this is obviously a brushoff and a side step of the real argument. The bottom line is many adults do work for minimum wage, and many of them do in fact have families. So, just because the minimum wage isn’t “designed” for heads of household doesn’t mean that it won’t affect them. Especially in an economy such as our current one. My response to this argument is that, if this is the case, then we should design a tiered minimum wage system. The easiest way to do this would be to have a higher minimum wage for adults over the age of 20. This would allow businesses to continue to employ teenagers (who generally have other sources of income) at a lower wage, while giving older workers the respect they deserve in the form of a reasonable wage that would allow them to feed their families and save for emergencies.

Another option might be to have a different wage structure for part-time and full-time employees, although free market capitalism has proven time and again that if it can exploit workers in exchange for profits, it will do so. Which leads me to suspect that the PT/FT wage structuring system would backfire, as companies would give all their employees only 39 hours. It sounds laughable, doesn’t it? But we all know this is what would happen. That alone should be enough to make you leery about this whole compensation debacle.

In light of the exploitative nature of capitalism, let’s focus more on the age-driven two-tiered wage system. A variation of this structure has in fact been in place since 1997, though most people don’t realize it. Employees under the age of 20 can be paid $4.25/hr for the first ninety days of employment. Putting this abysmal wage aside for a moment, we can begin to see that our government already embraces this structure; therefore, making this plan a reality would only be a matter of adjustment.

The two-tiered minimum is an acceptable answer to those who complain about paying high wages to teenagers and even to adult employees who are in an initial trial period. Like the one currently in place, a lower minimum could be adopted for these circumstances. Once an employee turns 20, and reaches the 90-day mark at a job, the minimum wage for that employee would necessarily increase to a living wage. This structure would give employers the ability to hire teenage workers for cheaper. And it would also build a trial period into the pay scale for new employees. Once a new employee hits 90 days (and is over 20 years old), he would be bumped up to the full minimum.

__________________________

Whatever the answer may be, something needs to change. As the previous budget models prove, anything less than $10/hr is impossible to live on. Some states have already taken action to better compensate employees by raising the state minimum higher than that of the federal. Some notable differences are:

  • Illinois $8.25
  • Oregon $8.50
  • Washington $8.67

But, even these minimums are not enough. The fact of the matter is businesses will almost never offer more than the bare minimum compensation to employees. This becomes even more troubling when our economy is in shambles, as it has been the last five years, because skilled workers, heads-of-households, who are trying to feed families, are forced into these ridiculously meager-paying positions. As a result, many people have lost their homes. The current minimum wage barely allows people to feed themselves, let alone pay mortgages. I propose that we begin pushing hard for a new minimum wage structure. Based on the models in this article, anything less than $10/hr is unacceptable.