January 11, 2007

How can you achieve the American Dream when you're earning this little?

The U.S. House of Representatives voted for an increase in the minimum wage yesterday, taking it up to $7.25 in 2010.

This is equivalent to £3.75 an hour.

It still has to pass through the U.S. Senate, where it’s likely to have tax breaks for small businesses attached to it. Because you can’t just do a minimum wage in America, you have to soften the blow too. Even though it’s worked pretty well over here without.

The Democrats will, rightly, call this progress. Without them it wouldn’t have gone up at all. But is £3.75 an hour really much progress? Our minimum wage is £5.35 an hour, and by 2010 will probably be nearer £6. Even the Confederation of British Industry are reasonably supportive of it.

Republican opponents (all Democrats and 80 Republicans voted for it) say it’s an “intrusion in the marketplace”. Surely it’s better to abandon principle for a while rather than see people live in poverty? As it is, it’s still not enough for anyone to live on, even if things are a bit cheaper over there.

To put this in context, the estimated ‘living wage’ (or amount needed to live on) in America is $8.20 per hour, but up to $18 an hour in many cities. In the UK it’s thought to be about £5.05 or £7.05 in London, so for some people, their minimum wage is more than they need to live on, but for others it isn’t.

Social justice seems to drop off a cliff somewhere in the middle of the Atlantic. Who said the world wasn’t flat?

- 27 comments by 2 or more people Not publicly viewable

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  1. mick

    Its interesting to hear you defend the national minimum wage. I wonder whether it leads to more unemployment, higher inflation and an artificial market for wages.

    More unemployment because we live in a global economy where jobs can easily be off-shored to low-wage economies. So employers will look at some work and realise that the Brits have priced themselves out of the market by having such a high minimum wage, and so will move the jobs to India, China or (if the minimum wage in the US is £3.75), then America!

    Higher inflation since by pushing up the minimum wage at an above-inflation rate, then others in the market are asking for similar pay rises

    An artificial market since instead of labour supply and demand dictating pay, it is set by government.

    11 Jan 2007, 08:21

  2. But there’s been no real rise in unemployment since the minimum wage, just mild fluctuations like you’d expect from the market. Most minimum wage jobs are service sector (cleaners, shop and pub staff, etc.) whose jobs cannot be sent abroad. There is an issue with some companies using illegal labour, but that’s something which we need to clean up, not a problem with the minimum wage.

    Inflation is being pushed higher more because of house prices than anything else. And it ain’t minimum wage types buying houses.

    In an ideal capitalist world then we wouldn’t need the minimum wage as wealth would spread nicely. But humans are incapable of ideal capitalism (just like they can’t handle ideal socialism) so unregulated labour causes poverty (which is down under Labour who introduced the minimum wage) and it is, to my mind, the government’s duty to stop poverty and suffering. There are no non-artificial markets anywhere in the world so why not have one which at least does something for the people, who are, after all, more important than a nice growth figure?

    11 Jan 2007, 10:17

  3. It’s all well and good saying a person needs £5.05 an hour as a living wage, but a person working 60 hours at £5.35 is somewhat less likely to be in poverty than a person working 20 hours at £5.35.

    11 Jan 2007, 13:45

  4. The American cost of living is also much lower. Luxury goods often have the same dollar price as our pound price. Public transport is generally incredibly cheap too.

    11 Jan 2007, 14:42

  5. Andrew – I don’t think people on the minimum wage are too fussed about the costs of luxury goods. I included the cost-of-living comparison to show that the American minimum wage is far less than the cost of living compared to our minimum wage, which is actually higher. So as a proportion of the living wage, the U.S. minimum wage is pretty useless, regardless of the currency conversions I did.

    Luke – I think the living wage is worked out as based on 40 hours per week. If you’re working 20 hours a week then maybe it’s assumed you should have two part-time jobs. And if you’re working 60 hours a week you’re mad.

    11 Jan 2007, 16:30

  6. And if you’re working 60 hours a week you’re mad.

    I can verify this. 60 hour weeks are physically painful.

    11 Jan 2007, 19:47

  7. Whether 60 hours a week is bearable or not depends on the job – I never found that a problem and could comfortably work 100 hour weeks in the summer. But I’m a fruitcake.

    With regards to costs of living and whatnot, I find the claim that it’s more expensive to live in America quite hard to believe. Having visited the country myself a couple of times, things are a lot cheaper – houses, cars, petrol, food… And how in god’s name can anyone live in London on £7.05 an hour?

    11 Jan 2007, 21:21

  8. I currently do about 22 hours a week and in the summer I was doing an average of 56. In that case I’m both mad and should have two part-time jobs.

    No scratch that, certain people should stop finding excuses not to employ me in proper work. Yes, that’s the problem…

    11 Jan 2007, 22:56

  9. And how in god’s name can anyone live in London on £7.05 an hour?

    By living on a sink estate?

    11 Jan 2007, 23:30

  10. I’d say the cost of living in the US is between 30-40% lower.
    When talking London, or the big things like housing, cars, forget about it.

    12 Jan 2007, 01:02

  11. I googled cost of living in the UK and US and the only thing I turned up in the 2 minutes I allocated to this task was that the cost of living in London is 10% higher than in New York. I reckon that’s largely to do with house prices and travel costs though.

    12 Jan 2007, 02:05

  12. I just had a quick look round on the internet to see how it would affect me if I lived in the good old US of A. When I qualify as a pilot, through the route I’ve chosen and where I’m likely to end up I can expect a basic starting salary, as a first officer on a jet, of around £23000 (plus a £1k/month allowance towards my training costs, making the total amount £35000). By way of comparison from the figures I’ve been looking at, in North America a new first officer starting on a regional jet fleet might expect to earn between £12k-£15k. At current exchange rates, a new pilot flying turboprop aircraft for reasonably well-known US carriers – where many do start out – might even be earning less than that – closer to £10000.

    It’s an interesting comparison – the skills required are the same, the job is the same and the responsibilities it carries are the same regardless of which side of the Atlantic you happen to fly on. When I look at those figures it makes me glad I live on this side of it. I don’t think the difference in living costs would be enough to offset that difference.

    12 Jan 2007, 05:10

  13. Chris May

    Cost of living comparisons can be a bit tricky if you’re talking about minimum wage earners.

    The relative cheapness of cars, petrol and houses in the US is unlikely to make much difference someone on the minimum wage, who most likely won’t afford a car or a house.

    So, probably, a meaningful comparison needs to take into account the relative costs of ‘essentials’ – food, clothing, rent, healthcare, schooling and so on.

    12 Jan 2007, 14:32

  14. The US writer Barbara Ehrenreich did an experiment a few years ago where she got a minimum wage job and tried living on the minimum wage, a kind of modern day Down and Out in Paris and London. She did it in three different places, I think, to give a representative sample, although I don’t think any of them were in the major cities. The main things I remember from reading the book a couple of years ago are:

    1)Cars are really important, and outside the big cities, lots of poor people own them because there is very little public transport and without one you really have no chance of holding down a job. Lots of people end up sleeping/living in them for periods too. I think she lived in a trailer for a time, as did a lot of her co-workers.

    2) Most of the people she worked with had pretty non-existent healthcare, resorting to doing things like pulling out their own teeth rather than pay the dentist’s fees.

    3) the only real way to live on these kind of wages was to live with someone else, which often meant women stayed in abusive relationships because they couldn’t afford to live on their own.

    From this book, I would say that the ‘cheaper cost of living in America’ arguments don’t really hold. I think basic rents in the places she lived weren’t all that cheap, hence the living in cars, and food was cheap, but as Chris’s figures would also seem to suggest, not as cheap as the minimum wage.

    12 Jan 2007, 15:06

  15. the other thing is, i don’t get this whole “social justice drops off a cliff in the atlantic” thing.
    “social justice” never existed here, surely doesn’t now.

    12 Jan 2007, 17:10

  16. In answer to comment 1, where claims are made that a higher minimum wage leads to

    More unemployment because we live in a global economy where jobs can easily be off-shored to low-wage economies.

    Exactly how can you off-shore shelf-stacking in Wal-Mart?

    Higher inflation since by pushing up the minimum wage at an above-inflation rate, then others in the market are asking for similar pay rises

    If the price of low-skill / low productivity labour goes up, employers are forced to innovate & train to increase productivity.

    An artificial market since instead of labour supply and demand dictating pay, it is set by government.

    Most markets are “artificial” (I suppose non-competitive is meant). Try buying a PC with anything other than Microsoft in it.

    12 Jan 2007, 19:17

  17. PS Inflation isn’t caused by wage rises, but the expectation that the central bank will tolerate excessive money creation by the commercial lenders.

    12 Jan 2007, 19:20

  18. hero

    Work is also not a proper market. One might be very valuable if properly employed but unable financially to hold out for a higher paid job and be forced to take one below subsitence level. As this takes up a good deal of available time and will not allow extra resources for job seeking or for additional training, the person may e stuck in a low wage job whilst being worth more to the job market – sometimes for their lifetime.

    A recent study saw subsistence level to be around an income of £17,000, which is equivalent to the PhD Stipend. All those secretaries and low-level administrators in your departments, most of the workers in estates, and a healthy chunk of the University House staff earn less than this.

    13 Jan 2007, 02:10

  19. How much “you” need depends on how many people are in the household and how big your housing costs are. Rents & mortgages are a big expense.

    In my opinion in the UK one person can live comfortably on £10,000 pa (after NIC, income tax) if they own a house without a mortgage. Which means the minimum wage is ok for people who have inherited a house and have no children!

    14 Jan 2007, 11:12

  20. Hero

    Yes, that about fits in – with rent/mortgage at about £300-400 and Council Tax at £70 a month, that means that you need around £15000 – £16000 after tax – which would mean subsitence is more like £17,800.

    14 Jan 2007, 11:56

  21. I am currently doing a PhD and get the standard full research council grant of £12,300 (non-taxable). If this is considered enough for me to live on for a year including paying rent then this should be enough for any-one to live on. I did work out how much I thought this was before tax but I can’t quite remember and it’s quite complicated – I think its in the region of £15k(??)

    14 Jan 2007, 18:06

  22. Is that argument backwards compatible so that £10k was enough two years ago, £8k was enough four years ago and £6k was enough six years ago? How times change…

    14 Jan 2007, 18:43

  23. I reckon someone on the minimum wage would need to work over sixty-seven hours a week to be as rich as a postgraduate. That’s assuming that postgrads don’t pay council tax:

    • Weeks in year: 52
    • Public holidays: 1 weeks equivalent
    • Other holidays 4 weeks
    • Working weeks: 47
    • Hours 67*47=3149
    • Gross pay £5.35*3149=£16,847
    • Income Tax: first £4745 tax free, net £2020 10% rest 23% that’s £2521
    • National Insurance: 11% on everything over £5200, that’s £1281
    • Council tax £800

    Net: £12,245 pa

    14 Jan 2007, 19:36

  24. I did do a 67 hour week this year. But only one.

    14 Jan 2007, 23:42

  25. A mistake. I assumed no payment for holidays. Assuming paid holidays, people on the minimum wage only have to work just over 60 hours per week to be as well off as a Phd student (52×60.5 is 3146 hours)

    15 Jan 2007, 10:30

  26. George, that’s not necessarily accurate. As a lot of people have minimum wage jobs with a minimum amount of hours contracted, lets say 20 hours a week. Even if they typically work 40 hours a week their paid holidays will pay them only at their contracted hours ie 20 hours wages. Thus, for some people taking holidays means a time when their income will be less than the average, skewing your figures.

    In my own experience working for minimum wage (yay Topshop :() I typically worked about 8-12 hours a week, but was only contracted for 4. So my two weeks holiday pay would be significantly less than I would be making if I was working. At the time minimum wage was £5.05, so a typical week was between £40.40-£60.60 whereas my holiday pay would be only £20.20.

    15 Jan 2007, 16:37

  27. Lew

    Sorry, I just landed here whilst googling something. I’ve lived in the US and the UK. Most minimum wage rate hourly workers in the US do not earn holiday time or sick leave. As in Wal Mart, they never log enough hours. Minimum wage hourly workers rarely get any paid or part paid health insurance if at all. Holiday and sick leave are not anywhere near the same as the UK.

    The NHS (for all its ills) and grocery prices here help my pay to go further. If you are not comparing large cities here and there, then the UK still has more public transport (infrastructure needs work); daily items like milk and bread are much less here and corner shops in the US can charge inflated prices; and finally… an American sized pint of beer is really inflated.

    Yes, there’s more elbow room in the US, but you must have a car outside the big cities. Americans are now paying Euro type fuel prices and continue to buy gas-guzzlers.

    There are lots of cool things about the US. The economy just isn’t always one of them unless you earn a comfortable salary. Millions live below the poverty level. No American could live on the OAP weekly pension. No way ever.

    I absolutely love the yellow school bus system. I hate the school run here. It’s absolutely daft.

    :) Lew

    06 Feb 2007, 21:47

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