Personal Finance

Cost of living is increasingly out of reach for low-wage workers

A rally for a $15 minimum hourly wage in New York City in 2015. The city raised its minimum wage to $15 in 2018, while New York State raised its minimum wage to $11.80 in December 2019, and that will increase statewide at the end of 2020 to $12.50.
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For minimum wage employees, the data may not be a surprise, but it remains a stark finding.

A new Economic Policy Institute report finds that, no matter where they live in the United States, minimum wage workers earn far less than they need to make ends meet. (Tweet This)

Compiling data from the U.S. Department of Housing and Urban Development, the Federal Highway Administration, the Bureau of Labor Statistics and several other sources, the nonpartisan think tank found that the average cost of living in the U.S., excluding discretionary spending, is more than $65,000 a year for a family with two adults and two children. That's roughly $50,000 more than what a minimum-wage worker earns. The EPI also looked at the cost of living for single adults and found similar disparities.

And the gap is even wider in some high-cost cities. A household with two adults and two children in Washington, D.C., for example, would need to budget more than $106,000 a year to make ends meet, researchers found. That makes it the most expensive area in the country for a family that size, without taking into account discretionary spending. (See chart below.)

The new data, which supports findings by other groups such as the National Low Income Housing Coalition and Pew Research Center, comes amid increased efforts to increase the minimum wage for workers across the country.

Several localities have raised their minimum wage, including Los Angeles, California's largest city, which announced on June 10 it would raise its minimum wage from $9 an hour to $15 by 2020. Some states have followed suite. Last month, the New York wage board appointed by Gov. Andrew Cuomo made history by recommending a $15 minimum wage for fast-food workers statewide.

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And the issue is likely to take center stage heading into the 2016 presidential race.

GOP presidential front runner Donald Trump told MSNBC last week, "I think having a low minimum wage is not a bad thing for this country." But he added that he hopes to "create jobs so that ... you're making much more than the minimum wage."

Meanwhile, Democratic front runner Hillary Clinton has spoken out in favor of legislation proposed by Sen. Patty Murray, a Democrat from Washington, that would establish a $12-an-hour minimum nationwide. And presidential candidate Sen. Bernie Sanders, a Vermont Independent who's running for the Democratic nomination, introduced his own legislation last month that would raise the federal minimum wage to $15 an hour, saying, "It is a national disgrace that millions of full-time workers are living in poverty and millions more are forced to work two or three jobs just to pay their bills." (President Barack Obama has called on Congress to raise the national minimum wage to $10.10 an hour and signed an executive order to raise the minimum wage to $10.10 for new federal service contract workers.)

Sanders called the current federal minimum wage of $7.25, in place since 2009, a "starvation wage"—a moniker borne out by the EPI data, which found that minimum wage workers make far less than the average cost of living in the more than 600 metropolitan areas analyzed, whether they're single or supporting a family.

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Even in Tennessee, a state with some of the most affordable cities in the country, minimum wage workers cannot cover the cost of basic necessities such as housing, food and other expenses, said Elise Gould, senior economist at EPI.

While the annual cost of living alone in Memphis with no children, for example, is about $27,000, a full-time minimum wage employee there earns just $15,080 a year, according to EPI. The disparity is much larger in high-cost areas such as New York City, where a full-time minimum wage employee earns $18,200 a year before taxes but the annual cost of living for one adult with no children is more than $43,000.

The nonprofit think tank released the analysis as part of an update to its Family Budget Calculator, a tool that provides the average monthly and annual costs for housing, food, child care and other basic living expenses, based on a user's location and the number of adults and children in the household, using data from a number of sources.