Minimum wage challenge: Don’t forget the benefits

By Rob Roper

As the Vermont Legislature debates raising the state minimum wage to $15 an hour, a handful of lawmakers are taking what’s being called the minimum wage challenge. The idea is to live on what a minimum wage earner makes in a week, which, according to the rules put out by Rights and Democracy, is as follows:

Take home income (after avg. housing & taxes subtracted) – Add 1 of the 4 below into your budget line based on your life circumstances*

1 — Married person living alone – $161.00
2 — Married person sharing housing cost w/spouse – $274.50
3 — Single person living alone- $147.00
4 — Single person sharing housing cost w/partner or roommate – $260.50

While trying to understand the real challenges of making ends meet on limited income is a worthwhile endeavor (I suggest reading Nickel and Dimed by Barbara Ehrenreich), this game misses the mark.

According to the Vermont Paycheck Calculator, the take-home pay of someone earning $10.50 an hour for a 40 hour week is $374 after taxes. Those game figures of $147 to $275 reflect a reduction in housing costs of what my back-of-the-napkin calculation appears to be $850 a month. Fair enough. But what it does not reflect is the benefits someone earning $20,800 per year (minimum wage/40 hours per week) collects in Vermont.

As the chart below illustrates, a single parent earning minimum wage has access to resources of roughly $45,000 a year, including benefits such as state and federal earned income tax credits, food stamps (3 Squares), and childcare subsidies. This is an amount roughly equivalent to the after-tax resources of someone who earns a salary of $52,000 a year. Legislators need to explain why it is fair for someone earning $50,000 a year to be forced to subsidize through taxes the higher standard of living, at least in terms of access to resources, of someone earning $25,000. Significantly higher when you subtract childcare costs from the $50,000 earner’s after tax income, which is not reflected in this chart.

Also looking at the chart you will see that someone earning $32,500, about what someone earning $15 an hour would make in a year, is starting to slide over the “benefits cliff” — the point where added income equals a reduction in overall access to resources. The worker who gets a wage bump from $15 to $18 or $19 an hour as a result of the minimum wage increase is really screwed.

This “benefits cliff” is what causes some workers to refuse promotion or increased salary for fear of loss of benefits. But, in doing so, folks that make this decision are relegating themselves to being part of a permanent underclass. Barring a lottery win, choosing benefits over income means poverty forever.

This dynamic is the “wage challenge” our legislators should be looking to fix.

Rob Roper is president of the Ethan Allen Institute. Reprinted with permission from the Ethan Allen Institute Blog.

Image courtesy of Flickr/