Around Austin we've been hearing a lot lately about how important it is to have a so-called Universal Living Wage. This is part of a nationwide campaign which is using Austin as one of its test-markets for an effort to get local governments to establish minimum wages within their jurisdictions which exceed the federally mandated minimum of $5.15 an hour.
The theory behind this movement is that the federal minimum wage is too low for anyone to actually live on in many parts of the country, and that a large segment of the population is suffering because of low wages which make it impossible for them to afford basic necessities like food and housing. But is this basic premise correct, and can those pushing this idea even get their math right?
Let's set aside for the time being the questions of whether we should even have a minimum wage and of whether municipal or regional governments ought to be in the business of dictating wages to businesses, and look at the basic flaws in the reasoning behind the Universal Living Wage movement.
If you visit the Universal Living Wage website they give a rundown of the formula for figuring out what the ULW should be in an area, based on rents in that area and the HUD standard that 30% of a person's income should go to housing. For Austin it comes up with a result of about $10.60 an hour, more than double the federal minimum wage. It's a lovely formula, except for the fact that it is based on a completely flawed assumption - really a collection of faulty assumptions.
The underlying conceptual error is that they seem to believe that the minimum wage is all that a large portion of the work force will ever be paid, and that a minimum wage job should provide a good living without requiring any sacrifice from the worker. They assume that the minimum wage is the standard in the workforce - all workers are ever going to earn - rather than an entry-level wage which requires some sacrifice from workers who will likely be motivated to move on to better paying jobs in the future.
This skewed perspective leads to huge errors in how they model the wage requirements of workers. The gigantic, glaring false assumption is that all minimum wage workers live by themselves in an efficiency apartment or larger accomodations, paying exactly the average price in the marketplace. They assume that minimum wage workers are not married, do not live with their family, and can't possibly find ways to reduce their overhead by sharing living space or moving into a less desirable neighborhood.