I am not sure how I came across this idea of Universal Living Wage. It is an idea that should get more attention particularly from policy makers in Washington. It addresses many of the issues related to the current shortcomings of our current minimum wage.
Some people might be saying how can you talk about minimum wage increases when we have unemployment (official) at 9.4%. I say to them: "go suck an egg". The increase in the minimum wage, currently at $6.55 per hour and is expected to go up to $7.25 per hour on July 24, 2009, may have actually created some economic stimulus.
Some studies indicate that 11.8 million people are directly effected by an increase in federal minimum wage. There are millions more people who salaries and wages are related in some way to the federal minimum wage. Potentially, that is a lot of money in the form of higher incomes for our economy.
One of the problems for our current minimum wage is that it lags behind the poverty line. A full-time minimum wage worker (40/hours per week, 54 week per year) will make $15,080 per year. Below is the table for the 2009 poverty line:
|Persons in family||Poverty guideline|
Source: The 2009 HHS Poverty Guidelines
For a family of 3 or more with one worker that family is earning below the poverty line. But the kicker is that most economists recognize that the poverty line substantially understates the income needed to support a family meaning the costs are actually much higher. Can you imagine trying to raise a family on a minimum wage? The current minimum wage fails to support the cost of living for many people particularly when it comes to housing costs.
That is where the Universal Living Wage may help. The Universal Living Wage is indexed to the local cost of housing (HUD's Fair Market Rents). The formula assumes that if you work a 40 hour work week you should be able to afford a one bedroom apartment no matter where you live and spend no more than 30% of income on housing. The formula is easy to compute:
1. HUD STANDARD: No more than 30% of a person's gross income should be spent on Housing.
2. HUD Fair Market Rent: $(A)_________One Bedroom Apartment, or ____# of bedrooms in the city/county of _____________________.
3. TOTAL MONTHLY INCOME: $(A)_________ divided by .3 = $(B)_________ monthly gross income necessary to afford basic housing.
4. PREMISE: Anyone working 40 hours per week should be able to get housing and get off of the streets.
5. WORK HOURS: 40 hours/week @ 4.33 weeks/month = 173.33 work hours/month, 173.33 work hours X 12 months = 2080 hours/year.
6. Total Gross Monthly Income of $(B)_________ X 12 months = $(C)___________
$(C)___________ divided by 2080 hours/year $_________ /hour
NEW HOURLY WAGE in __________________
For example, the Universal Living Wage formula, based on existing governmental guidelines, requires a wage of $11.73 to get an efficiency apartment and $12.08 for a one bedroom apartment in Ithaca, New York.
Raising the federal minimum wage is a constant political battle that often causes significant delays in the increase. Prior to this latest round of increases that started in 2007, the last time the minimum wage was raised was 1997. This delay has a huge negative impact on the living standard of people living on minimum wages. The other problem is that the wage number is often arbitrarily picked by legislators with very little rhyme or reason for the number picked.
This Universal Living Wage formula removes much of the delay and political gamesmanship that occurs every seven to ten years. It eliminates the arbitrariness of the current procedures. Most importantly, it helps employers forecast or anticipate what the hourly wage will be which is much better than the current procedures.
All it takes is for legislation to adopt the Universal Living Wage formula as the new federal standard for determining the federal minimum wage.