Living in Poverty?

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In an earlier
article
, I wrote (indirectly quoting Economist magazine)
that poverty could be overcome fairly effectively if teenagers do
just a few things: finish high school, don't have babies, and find
a job and keep it. I also stated that two people working full time,
each earning just $7.50 per hour, should have over $24,000 a year
after income taxes. My belief was that they could spend a third
of that on rent and have enough left over to live decently.

A few e-mailers
challenged my budgeting skills, and, since our national socialists
— oops, I mean our federal socialists — are planning to increase
the minimum wage to approximately that hourly rate, I thought it
might be a good time to explore my previous assertions. There’s
no need to discuss how our fearless leaders’ misguided wage increase
will also amplify unemployment, since Austrian economists and others
have explained this many times over.

Let’s use the
impending $7.25 per hour wage this time, and assume that the two
people in question, who could be in a committed relationship or
just roommates, work a moderate thirty-five hours per week, fifty
weeks a year. The resultant annual gross income for each, before
taxes, is approximately $12,687. The household thus earns $25,375
annually, which I’ll round downward to $25,000, or $2,083 per month.
Household budgets typically allocate up to 30% of gross income toward
rent; in the case of our hypothetical couple this would be $625
per month. So the first question is: can a decent $625 per month
rental be found, anywhere in the United States?

A quick web-search
took me to a list of the fifty
most populous cities
as of 2005. I decided to focus exclusively
on the mid-sized cities at the bottom. Cleveland, OH, appearing
right after still-distressed New Orleans, seemed like a logical
cutoff. The rest of the cities on the list are Kansas City, MO;
Mesa, AZ; Virginia Beach, VA; Omaha, NB; Oakland, CA; Miami, FL;
Tulsa, OK; Honolulu, HI; Minneapolis, MN; Colorado Springs, CO;
and Arlington, TX.

I eliminated
Honolulu due to its high cost of living, the expenditure involved
in getting there, and its isolation. I then eliminated other cities
for one semi-logical reason or another, and eventually decided to
search only in Cleveland, Kansas City, Minneapolis and Miami.

I assumed that
the majority of couples would be roommates, and would want separate
bedrooms; I therefore searched various “apartment hunter” websites
for two-bedroom apartments at $625 or less per month. Unfortunately,
all the sites’ results listed bedroom ranges and price ranges, so
in most cases it was impossible to determine if a two-bedroom apartment
could, in fact, be had for $625 or less. However, it was
possible to deduce “hits” in some cases, so I settled on rentals.com
and searched for two-bedrooms between $500 and $600. My findings
are summarized below:

~

Possibles

Hits

Cleveland

74

22

Kansas
City

32

3

Minneapolis

2

1

Miami

3

2

It should be
noted that I have no idea what kinds of neighborhoods these units
are located in, and some are not in the cities themselves but in
adjacent towns. Most of the associated photos present the buildings
and their environs as quite nice (as one would expect), and it seems
likely that many of these are decent places to live. Also, it was
possible to deduce that there are plenty of one-bedroom apartments
below $625 available, which should be feasible for many couples.
My conclusion? Affordable rental units for low-income workers are
obtainable, although it may be necessary to travel to find one.
I understand that it may be tough to move now and find a job later,
but can it really be all that difficult to find a job at minimum
wage?

Now, assuming
a state tax rate of 5%, and after deducting all payroll taxes, each
person would be left with about $10,400 in annual net pay. The household
thus has a disposable income of $20,800 for the year, or $1,733
per month. Subtracting the monthly rent payment of $625, our couple
is left with $1,108 to cover all its other expenses. I’ll admit
that this doesn’t sound like much. However, I was able to prepare
the following monthly budget:

Food

400

Utilities

100

Clothing
purchases

100

Travel

150

Laundry

40

Telephone

40

Renters
Insurance

10

Household
Items

100

Prescriptions

40

Other

100

TOTAL

$1,080

The $1,080
in expenses plus $625 rental payment comes to $1,705, within our
budget. While the above may be a bit austere, it is by no means
absurd. Naturally, some people would prefer to spend less on clothing
and more on, say, entertainment. Some flexibility would seem to
be available in the Food, Household Items and Other categories,
as well.

An obvious
omission is health insurance, which is clearly unaffordable at this
income level. Perhaps this could be addressed, at least in part,
by one of the pair’s employers. The above budget also assumes a
good general level of health. (I’m fully aware that some prescriptions
or health problems can cost hundreds of dollars or more per month.)

The bottom
line? Living at a $7.25 hourly wage in a decent apartment, in a
decent neighborhood, is entirely possible — without any handouts
from the state. The compromises that must be made are minimal: living
with someone else, keeping a job, and avoiding the expenses and
responsibilities associated with having children. Over time, minimum-wage
workers who stay at their jobs will learn more, become more efficient,
and provide more value to their employers. They will earn wage increases.
They should be able to save some money and gradually improve their
standard of living. When they can afford it, they might choose to
have kids. Sooner or later, any thoughts of living in poverty will
become distant memories.

January
20, 2007

Andrew
S. Fischer has worked in various fields.

Andrew
S. Fischer

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