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.