Being Poor Ain’t What It Used to Be

Income with and without the EITCIt’s worse. But I’m getting ahead of the story.

Faithful reader and economics enthusiast Brian K. recently posted an article from the NYT from economics professor David Neumark explaining that the minimum wage situation isn’t as dire as it seems. He asserts the Earned Income Tax Credit (EITC) helps offset most of the losses to minimum wage in constant dollars.

The professor’s math holds, and in fairness, I was unaware of how much of an advantage the EITC is to low income families. This does take a lot of the wind out of the oft-touted argument that in inflation-adjusted dollars, the minimum wage has declined dramatically over the last several decades.

But the story isn’t quite done there. First, the EITC does very little for families without kids. Granted, families without kids have lower expenses, but an apples-to-apples comparison of childless adults across the decades still shows a substantial decline income across those same 25 years.

Still, let’s focus on Professor Neumark’s standard family of 4. Further, let’s compare that family’s minimum wage income against the U.S. Census Bureau’s Poverty Threshold. And let me preemptively concede that this poverty threshold is an imperfect measure of whether or not a family is “poor”, but whatever its imperfections, it should be consistently imperfect across the years such that it can be useful in a historical comparison. Further, while food stamps and other non-cash subsidies are not included in these thresholds, tax burdens/credits (including the EITC) are in there.

The table below calculates the number of full-time minimum-wage jobs required for a family of 4 to hit the poverty threshold in both 1976 and in 2012.

Year Min Wage Hrs/Yr Annual Wages Poverty Threshold Jobs Required
1976  $         2.30 2000  $         4,600.00  $                   5,815.00 1.26
2012  $         7.25 2000  $       14,500.00  $                23,492.00 1.62

The results show that since 1976, almost an extra half of a job is required just to his this meager threshold. That’s a 28% labor increase required just to achieve the same standard of living.  So while Nuemark’s assertion that real wages have remained flat when adjusted for inflation and taxes may be accurate, it does not take into account that the actual cost of getting by has climbed faster than inflation.

Let’s look at the current “family of 4” situation a bit differently. Harlingen, Texas is consistently deemed the cheapest place in the country to live. If minimum wage constitutes a living wage anywhere, it should be there. However, MIT’s living wage calculator for the Harlingen area estimates that our family of 4 needs a gross income (before taxes, including the EITC) of $36,088 to make ends meet. This calculator assumes minimal costs for food, housing, medical, and transportation needs. It further assumes there are no child care expenses, meaning the parents’ work schedules have to be opposite enough for that to work. And it provides a meager $176/month for “other” expenses outside the 4 basic categories. This expense model hardly qualifies as living comfortably, and yet it requires 2.5 minimum-wage jobs to achieve this standard of living.

That 2.5 job requirement may be partially offset by SNAP (Food Stamps) and other subsidy programs, but considering there’s no child support in the mix, and that runs about $700/month for two kids I would argue that subsidies might at best balance out the missing child support.

So hopefully we can now agree that getting by on your own while working a minimum wage job sucks a lot more now than it used to. And while trying to raise a small family on minimum wage jobs has not seen a commensurate increase in suckage over time, it still draws a mighty vacuum.

The plight of the working poor is a lot like the climate change issue. You can choose to ignore it or claim it doesn’t exist, but it’s going to continue to grow and eventually bite you in the ass whether you believe in it or not.