Sten Gazette

Minimum wage laws are complex, with Federal and State rates often in conflict. It’s generally agreed, however, that the Federal minimum wage is not enough to live on. The math is pretty simple– minimum wage for a 40 hour work week amounts to an annual gross income of just over $10,000. There are few if any places in the US where that is enough to purchase the necessities– housing, food, clothing, and transportation — to say nothing of luxuries like health insurance.

An increase in minimum wage rates seems like an obvious solution, but states with higher minimum wages (e.g. New York and California, to name two) still have an ever increasing percentage of their residents living at or below “the poverty line.” Part of the problem is that governments keep changing the definition of poverty, or “move the poverty line” whenever it is in their political interests to do so. That’s way too easy to do, because poverty is hard to define. If we go farther than most reporting organizations do, and define poverty as being unable to afford the necessities listed above, you still have a lot of wiggle room because the cost of all of the necessities is driven by market forces, and there are huge relativities in the categories. For example, housing can range from a fleabag motel room to a house, transportation can mean public transportation in areas where it’s available to private motor vehicles where it is not.

So any attempt to establish a poverty line is going to be arbitrary, and irrelevant in many cases. And setting a minimum wage that is “enough to live on” is just about impossible. A big part of the problem is that the federal minimum wage is a one-size-fits-all approach to a very complex problem.

But another part of the problem is that minimum wage rates are way too high in many cases. Take your typical high school student who works part-time in a grocery store, and is paid minimum wage. Very likely he is living at home with his parents, so he doesn’t pay for rent or food. If he drives a car to work the odds are pretty good that most of the costs are paid for by his parents. In other words, all the necessities are paid for by someone else and his entire pay check is “disposable income.”

Maybe, just maybe, this kid really is saving for college, but how fair is that? One of his workmates, maybe a couple years older, is doing the same work for the same pay and can’t afford to pay rent and grocery bills, much less put money aside for later self-improvement.

It’s long past time to apply a simple solution to this problem– set a lower minimum wage for those who don’t need it, and a higher minimum wage for those who do.

There are plenty of precedents. In many countries, minimum wage rates are determined by the employee’s age and/or the industry in which he is employed. Industry-based minimum wages are difficult to employ fairly, but age-based minimums are relatively easy. And the age breaks could easily be adjusted by whether the employee has dependents.

Here’s an example of how it could be done– overly simplified, but adequate to illustrate the principles involved:

$3.00 for an unemancipated person under 18, or one who is claimed as a dependent, e.g. no exemptions on form W-4.

$7.00 per hour, basic minimum wage, for a person who is self-sufficient but has no dependents, e.g. a single “self” exemption on the W-4.

$1.00 per hour additional, for each dependent claimed on the W-4.

The obvious fly in the ointment is that employers would naturally prefer to hire low-cost high-school students, but there’s an easy fix for that too– there are so many overheads or “on-costs” associated with hiring an employee that it should be easy for the federal and state governments to offer incentives (e.g. tax breaks) or disincentives e.g. (tax penalties) to level the playing field.

–SG

What do you think? Please enter a comment below.

This entry was posted on Saturday, December 31st, 2005 at 12:23 pm and is filed under Simple Solutions. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.