The federal minimum wage was established in 1938 at 25¢ an hour (about $4.26 in today’s dollars). Since then it’s been adjusted 29 times to keep up with inflation and rising living standards. The most recent change was in 2009, when the minimum wage increased to $7.25 an hour — but that hasn’t been enough to maintain the value of the wage.
Adjusted for inflation, today’s minimum wage is worth about 33 percent less than it was in 1968 (the year of its peak adjusted value). Simply put, the minimum wage has not kept pace with the cost of living in America or what our society views as the basic income that a job should provide.
Minimum wage only changes when lawmakers want it to
Oklahoma uses the federal minimum wage as our state minimum wage. Three bills (HB 1477, HB 1634, and HB 1940) were introduced last session that could have raised the minimum wage in Oklahoma, but none of them received consideration by the Legislature. So, right now, our wage only goes up if federal lawmakers decide to raise it for the whole country.
That doesn’t happen on a regular schedule – the federal minimum wage is not automatically adjusted to keep pace with productivity or changes in the consumer price index. The last increase (which went into effect in 2009) was passed in 2007, so it’s been a full decade since Congress has taken any action to adjust it.
Because of this lack of indexing, the federal minimum wage has lost a lot of its value over time. In terms of purchasing power, the minimum wage had its highest value in 1968. The wage was raised to $1.60 that year, which equates to $11.04 in 2016 dollars. If the wage today were actually $11, a full-time minimum wage worker in Oklahoma would be making $7,800 more per year.
Some states have taken the initiative on making the minimum wage a livable wage. Twenty-nine states and D.C. have set a minimum wage higher than the federal standard, and many of them have built in some automatic annual cost of living adjustment. And these states are seeing improvements in wages.
It’s not only minimum wage workers who benefit. Because wage increases tend to trickle up, research has shown that raising the minimum wage would improve the financial situation of most income groups. The Congressional Budget Office estimates that raising the minimum wage to $10.10 would raise the average income for all families making less than $72,300 per year. Families with incomes above that would see very little or no change in their income. Families near the bottom of the income scale would see the greatest boost.
Increasing the income and financial stability of low- and middle-income families stands to benefit us all. The tax base will increase (meaning more revenue for state services), the economy will be stronger (because people spend more when they have more), and need for public assistance will be less (because more families will be able to support themselves with work alone).
The large majority of studies on the effect of minimum wage increases have found that raising the minimum wage has little to no adverse effect on business – they don’t cut jobs or hours to save money. One exception is a recent study based in Seattle (a city that is transitioning its minimum wage up to $15 an hour by 2018) – but the methods of that study have been called into question. Among other problems, the researchers didn’t examine businesses with multiple locations (so no chain stores or restaurants), and they compared Seattle to other areas of Washington state that didn’t raise their wage (not an appropriate comparison given that Seattle is much larger and experiencing a unique economic boom).
And for all the trumpeting of this report by opponents of the minimum wage, they tend to leave out the fact that Seattle’s unemployment rate (3.3 percent) just reached a historic low and is significantly lower than unemployment in Oklahoma City, Tulsa, or the state as a whole.
The minimum wage is not enough to cover basic cost of living in Oklahoma
At this point you might say, sure, that works for Seattle, but Oklahomans’ economic situation is very different. It’s true that Oklahoma consistently has one of the lowest costs-of-living in the United States – in 2014 we were the 5th least expensive state. So if a full-time worker can live on minimum wage anywhere, that should be more likely in Oklahoma. But a look at typical family expenses shows that the minimum wage is not enough.
A common perception is that minimum wage workers are primarily teenagers or college students trying to make some extra pocket money with summer or after-school jobs. But that’s a myth. Nationally, teenagers made up only 20.6 percent of the minimum wage workforce in 2016, and 20 to 24 year-olds accounted for 24.8 percent. The majority (54.6 percent) of minimum wage workers are 25 or older. In Oklahoma, most people who work full-time for minimum wage or less are adults, living alone or with a spouse or partner.
That means most minimum wage workers are trying to support themselves and possibly a child or other family member. Is that possible for someone making minimum wage?
A single, full-time worker making minimum wage would bring home $1,256.67 a month (assuming they don’t have to take any unpaid time off) before taxes. Two adults, both working full-time at minimum wage, will bring in about $2,500 per month. Given this budget, would living in Oklahoma be affordable?
The biggest monthly expense is typically housing – it is generally recommended that households spend no more than 30 percent of their monthly income on housing costs (including rent or mortgage payments and utilities). For our single, full-time minimum wage worker, that would be $377 per month available for rent and utilities. But the fair market rent for a one-bedroom rental in Oklahoma is $598 – a two-bedroom rental would be about $768. So minimum wage workers should expect to spend more than the recommended 30 percent on housing, leaving less money for other monthly essentials like food and child care.
With estimates for food costs from USDA and child care costs from the Oklahoma Child Care Resource & Referral Association, here’s what an average month of these bare necessities would look like for minimum wage workers in Oklahoma:
A single adult may be able to get by, but having even one child pushes expenses well over income. Two full-time working adults can’t support two children on the minimum wage. And that’s before transportation, clothes, utilities, medical care, and any other expense that may crop up are included. It also assumes full-time work is available, but for thousands of workers in the retail and restaurant industries, the hours they are given to work can vary dramatically month to month.
To put it simply, the minimum wage is not livable — even in a state like Oklahoma where the cost of living is relatively low. Adults working full-time at this wage will struggle to make ends meet. They might manage to get by for awhile, but it’s unlikely they will ever get ahead. They will be extremely vulnerable to the financial, health, or family emergencies that happen to nearly all of us at some point in our lives. When they simply can’t pay the bills, they may be targeted by predatory lenders who trap them in expensive, spiraling debt. Working poverty will persist, drawing down the tax base and increasing the cost of public assistance. And that’s a problem for all of us.