‘Workers can’t afford a two-bedroom apartment’ is a weak argument for raising the minimum wage
CNBC reported the following today:
People working minimum wage jobs full-time cannot afford a two-bedroom apartment in any state in the country, the National Low Income Housing Coalition’s annual “Out of Reach” report finds. In 93% of U.S. counties, the same workers can’t afford a modest one-bedroom.
The report defines affordability as the hourly wage a full-time worker must earn to spend no more than 30% of their income on rent, in line with what most budgeting experts recommend. This year, workers would need to earn $24.90 per hour for a two-bedroom home and $20.40 per hour for a one-bedroom rental. That’s an increase from $23.96 and $19.56, respectively, from last year.
The average hourly worker currently earns $18.78 per hour, the report finds, more than $6 short of the wage needed to afford a two-bedroom rental.
Given each state and locality’s minimum wage, the report finds that the average minimum wage worker in the U.S. would need to work nearly 97 hours per week to afford the average two-bedroom home. That’s more than two full-time jobs.
If someone is a low-wage worker, it should logically follow that some things will be out of their price range, for example, a two-bedroom apartment. So, why does the media fixate on this issue? Potentially because a lot of politicians have in the past made a big deal of pushing for minimum wage hikes based on studies like these showing that most minimum wage workers can not afford things like a two-bedroom apartment.
To be clear, it is a problem if people in a society are too poor to afford basic necessities like shelter or food. That is an issue that needs remedying. However, there are a lot of things wrong with politicians claiming that because workers cannot afford a two-bedroom apartment, then the minimum wage must be raised. This becomes more apparent when we understand a few things about the minimum wage labor force and how wages work.
For starters, there is a perfectly reasonable explanation as to why some jobs pay lower than others. The Bureau of Labor Statistics data shows that minimum wage jobs are most concentrated in the service industry. Jobs in this industry require low levels of skill and are not highly productive, which explains the low wage.
But, additionally, as our research has shown numerous times, the minimum wage labor force is largely made up of young, low-level skilled workers that are at the starting points of their career and are yet to build levels of skill and experience, warranting higher incomes. Whether these types of workers are able to afford a two-bedroom apartment with their current income is largely irrelevant to the minimum wage policy. And raising the minimum wage prevents the labor market from growing their human capital.
Of course, it becomes an issue if other older, full-time workers are becoming increasingly stuck in low-paying jobs and cannot afford basic necessities. But then again, that is not the average minimum wage worker, and even if it was, there are a lot of other, less disastrous ways through which low-skilled, low-wage workers could raise their incomes.
What is relevant to consider when it comes to making a minimum wage policy is whether it has net positive or negative social and economic outcomes. And the research evidence largely points to negative outcomes.
And besides, if it is perfectly reasonable to assert that the minimum wage should be raised because workers cannot afford a two-bedroom apartment, why stop there? Why not make it so that that minimum wage workers can afford a 5 bedroom apartment? Or better yet, a mansion?