By Sam Houston
An article posted on the Davis Vanguard last week written by the Davis Citizens for a Living Wage (DCLW) commented on five “myths” about the economic effects of raising the minimum wage. Instead of debating the possible economic impacts of raising the minimum wage by 60% in a town of about 66,000 people using national, regional and specific economic data, we need to look at the actual effects of raising the minimum wage on different groups of people in Davis.
When a law is created either by elected official or through the initiative process it is usually done to in order to achieve a determined outcome. In this case a group of local citizens are trying to get an initiative passed that would require that the minimum wage in Davis be raised to $15 an hour in order to “bring many working poor out of poverty in addition to stimulating the local economy.”
I think that it is a very noble effort to try and change laws so that we can help the working poor and lift them out of poverty. I am not in any way disagreeing with or discouraging the motives of the group. However, I think that it is worth looking at the effect of raising the minimum wage in an isolated labor market like the City of Davis.
A single person making the current minimum wage in Davis makes about $18,720 per year. According to DCLW this would be $2,854 less than the annual “Living Wage” required to live in Yolo County without government subsidies.
An increase in their wages from $9/hr. to $15/hr. would have them making $31,200 per year. The increase of $12,480 would increase their buying power by $10,296 after accounting for additional taxes and would be above the “Living Wage” threshold. (I understand that there will also be an effect on employment, labor and prices if the minimum wage is raised, but that is not the focus of the article and can be discussed another time) A raise in the minimum wage for this individual would achieve the goal outlined by DCLW.
Now let’s look at a single mother with a full time minimum wage job with one school aged child. She would make the same $18,720 per year as the single person with no child. According to the “Living Wage Calculator” she would be making $24,606 less than is required for a “Living Wage” in Yolo County.
Luckily she would qualify for a variety of government programs that will help her decrease the amount of income needed to live with a child in Yolo County. The biggest assistance is qualifying for Section 8 housing. This will save the single mother about $7,500 per year in rent. She would also be eligible for an Earned Income Tax Credit in the amount of $3,160 and a child tax credit of $1,000. Another benefit available to her would be Medi-Cal.
This would save her from paying about $1,800 per year in insurance premiums through Covered California. Other programs such as Cal Fresh ($4,300), a daily no cost school breakfast and lunch ($650), free government phone ($600), reduced PG&E rates ($720) are available at her income level. I am sure that I am missing a few, but the value of those mentioned equal almost $20,000 leaving her about $4,600 short of earning a “Living Wage”.
Now let’s see what happens when we increase the single mothers wage from $9/hr. to $15/hr. Her wage would increase from $18,720 per year to $31,200 per year. After accounting for taxes this should leave her with an additional buying power of $10,296. However, since all of the government assistance programs that she and her child were eligible for are based on Federal or State poverty levels and those will not be increased when a local ordinance is passed in Davis she will lose about $17,000 of those benefits.
So the net effect of increasing her wage from $9/hr. to $15/hr. is a loss in buying power equal to about $6,700 and would leave her more than $12,000 under the “Living Wage”. You can do a calculation for a mother with two children or a couple with two children with one or both working a minimum wage job and they will come out similar. In each instance increasing the minimum wage in Davis to $15 would hurt, not help those families.
I am not advocating that poor families in Davis should stay on government assistance to survive. I am also not saying that the current laws should not be changed in order to help struggling families. All I am saying is that the suggested solution by the Davis Citizens for a Living Wage is a bad idea because it is going to hurt the low income families in Davis that need help the most.