Thursday, August 03, 2006

Minimum Wage

This past weekend the US House passed a bill raising the minimum wage from $5.15 an hour to $7.25, to be phased in over a period of 2 years. This evening the Senate rejected the bill. Without getting into a discussion on the various tax cuts that were also a part of the bill and the political motives that led to its defeat, and without considering the percentage that congressional salaries have increased in the 9 years since the last minimum wage increase, I want to focus for just a bit on the minimum wage itself.

Consider a full time worker, working 40 hours per week for 52 weeks a year. At the current minimum wage level of $5.15 per hour, that worker would earn $10,712 annually. At a minimum wage of $7.25 an hour, the annual earnings would increase to $15,080. He or she might also be eligible for a tax credit of between $400 and $4000. For the sake of argument, let's assume our worker is married with 2 small children, is never absent from work, and is eligible for the maximum tax credit. At the current $5.15 per hour the family income would be approximately $15,000; at $7.25 it would be slightly more than $19,000. The 2006 federal poverty level for a family of 4 is $20,000.

The current minimum wage leaves an earner well below the poverty level, and a proposed 40% increase would almost get a worker up to the poverty level. To help put that in context, take the Poverty Tour.

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