Is It Time to Abolish the Minimum Wage?

Maybe we're thinking about this all wrong and should use a formula, instead ...

Contributing Editor | Dr. G.S. Potter

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Income distribution data tells us that 10 percent of the population makes under $15,000 per year. Another 9 percent makes between $15,000 and 25,000 per year, and there is another 9 percent that makes between $25,000 and $35,000 annually. And 12 percent bring in $35,000-50,000 per year.  That’s 40 percent of the population bringing in under $50,000 per year.  According to MIT’s living wage calculator, there are only 2 states in which a person making under $50,000 per year can afford to meet their most basic needs without outside assistance.  The remaining 2 require an income of at least $45,000.

There is not one state in the US where an individual can meet the basic standards of living without making at least $45,000 per year, or $22.50 per hour.

30 percent of the population makes between $50,000 and 100,000 per year.  22 percent make between $100,000 and 200,000 per year.  And the remaining 8.5 percent make $200,000 or more.  There are approximately 15 million millionaires in the United States and 607 billionaires.  The top 10 percent makes $138,000 per year or more, while the top 1 percent makes $417,000 per year or more.

Worse, 20 percent of the population has no wealth or lives in debt. 

According to the Washington Center for Equitable Growth

Wealth is distributed in a highly unequal fashion, with the wealthiest 1 percent of families in the United States holding about 40 percent of all wealth and the bottom 90 percent of families holding less than one-quarter of all wealth.  Notably, 25 percent of families have less than $10,000 in wealth. The share of wealth held by the wealthiest families substantially exceeds the share of income received by the highest-income families.

What this tells us is that in America, the wealthy and higher earning business owners, property owners, and politicians have created a system in which their financial gain is created by underpaying and overcharging the working and under classes to the point that they cannot survive.

And the only thing standing between wage exploitation and indentured servitude?  The minimum wage

They Really Don’t Want to Pay You Anything

The federal minimum wage serves as proof that if employers had the opportunity to pay employees nothing, they’d jump at the chance.

Instead of paying nothing, though, they pay less than one-third of what it takes to survive.  At $7.55 an hour, minimum wage workers earn an annual salary of approximately $14,000 per year after taxes.  If they lived in one of the states where it costs at least $50,000 a year to survive, they would have a gap of $36,000 per year to fill. 

As a nation, trillions of dollars have been siphoned out of the pockets of lower class Americans and put directly into the pockets of their middle and mostly upper-class peers. 

And still, when campaigns to raise the minimum wage do arise, one of the first questions asked is: “How are small business owners supposed to pay for it?” As if raising the minimum wage would create a debt of trillions of dollars that suddenly businesses would be responsible for.  This couldn’t be further from the truth.

Raising the minimum wage to a living wage would not create a debt worth trillions of dollars.  That debt exists. That debt was created by the privileged classes and it is being paid by the underclasses. What raising the minimum wage would do is transfer a portion of that debt back to the middle and upper classes that both created it and can afford it. 

By itself, though, raising the minimum wage isn’t enough.  In fact, it will be meaningless even if the popular $15/hour minimum wage is passed if middle and upper-class landlords and business owners raid the cost of rent, goods and services in efforts to push the debt back onto the poor.

Tight Living

The national average to rent a one-bedroom apartment is $1,216 per month.  The average cost of an electricity bill is $111.16.  The average consumer pays $60-100 per month for internet and another $80 on their phone bill. It costs the average person $644 to eat every month. Some folks have to pay water, gas, and oil as part of their utility burden.

We’re already at over $2,500 per month just for the bare minimum. And that doesn’t even include cable. Or hygiene products, clothes, bus fare, car payments, basic technologies like a computer, minimal social activities, and seasonal considerations.  Or medical care, educational expenses, basic repairs, or even quarters for the laundromat. 

There’s no space in this budget for childcare, a broken phone, a haircut or a flat tire.  There’s no space for the things a person needs to participate in the job market or society.  Tens of millions of Americans are forced to work 40 hours a week just to know they still aren’t even halfway to where they need to escape the tortuous combination of poverty and stagnation. 

And the middle and upper-classes add insult to injury by setting up countless financial and practical punishments for the poor for having to suffer the consequences of their conditions.

Stuck Between a Landlord & A Hard Job

Landlords frequently delay making repairs in rental units.  These delays can cost renters that are forced to make alternative accommodations.  For example, if an apartment has bed bugs or fleas and a landlord fails to call an exterminator, a tenant may try to buy flea bomb and itch cream. They will have to take money from their food budget or risk a late fee on their electric bill.  And the landlord has no intention of paying that.  But be a day late on that rent and watch how fast that late fee gets tagged on to next month’s rent. The electricity company doesn’t care that you lost 3 hours of work because the bus don’t run on time.  The courts don’t care that you missed the deadline because you don’t have a computer and the library printer was broken down.  And your boss still expects you to dress a certain way even though he doesn’t pay you enough to buy a solid bra off of the rack.

Middle and upper-class landlords and business owners are overcharging poor people on one hand and hitting them with late fees for not being able to pay with the other.   This is why tens of millions of Americans live in poverty.

114 million people rent from 23 million landlords.  The average income of a landlord in the United States rests at just under $72,000 per year.  Only 17 percent of landlords rely on rent as their primary source of income.  The rest exploit the renting classes for disposable income and luxury items.  On the other side of the housing coin, close to 12 of the 19 million renter households in the United States make less than $50,000 per year. 5.5 million of them make less than $20,000 per year.

In addition to the 23 million landlords trying to exploit them for rent, lower class individuals and families have their labor taken advantage of by 5.6 million business owners. 

According to the latest US Census Bureau statistics, there were about 7.6 million employer firms (i.e., businesses with employees) operating in the United States in 2017. Of those businesses, 89 percent have less than 20 employees. Fundera reports …

The average small business owner salary is $66,373 in 2019, according to PayScale data. Close to 14% take more than $100,000 per year, and the average salary for a CEO is $164,749 per year.

So this is definitely a class thing.  But it is also a race thing. 

74 percent of landlords are White, 8 percent are Latino, and 7 percent are Black.  28 percent of White people are renters, while 59 percent and 54 percent of Blacks and Latinos, respectively are forced to rent.  According to the Census Bureau, 72 percent of small business owners are White.  Only 13.5 percent of small businesses are owned by Latinos and 6 percent are owned by Black entrepreneurs. 

And while non-Whites are underrepresented as business owners, they are over-represented as people forced into poverty.  For example, while the poverty rate for white people is 8 percent, the poverty rate for Black and Latino Americans is 21 percent and 18 percent respectively.

With close to two-thirds of all landlords and business owners being white, and the overwhelming majority coming from middle and upper classes – it’s hard to understand poverty without acknowledging racism in addition to classism.

It’s easy to say, though, that White people still haven’t learned how to make a living without stealing from poor Black and Brown people.  

So the question isn’t so much: “How are business owners supposed to survive if we raise the minimum wage?”  It’s: “Why are business owner’s allowed to make a profit if their employees aren’t able to meet a basic standard of living?”

It’s We the People, not We the Businesses, right?

But even if we managed to triple the minimum wage, it wouldn’t be enough to ensure that the working class could afford a lifestyle free of the traumas of poverty.  Raising the minimum wage is one way to try to increase the standard of living for people forced into poverty, but the minimum wage is meaningless if we don’t simultaneously prevent business and property owners from raising the cost of rent, goods, and services in response. 

This is why the minimum wage needs to be a formula, not a number. 

A Wage Formula

It doesn’t have to be complicated.  For example, property owners have devised a very simple formula to prevent low wage workers specifically from accessing housing.  A pervasive obstacle for renters is a requirement that they make three times the rent to qualify.  If landlords believe that renters should earn more than three times the rent just to access shelter, then it would stand to reason that the minimum wage should amount to three times the local area rent per month.  That could be a potential formula to borrow from.

In cities like New York where the average cost of rent is $3000 per month, the minimum wage would have to equate to three times that amount per month, or $9000.  That works out to about $56.25 per hour.  In places like Baton Rouge, LA where the cost of a one-bedroom is around $1000 per month, the minimum wage would equate to $3000 per month, or $18.75 an hour.

If we codify the idea that at the very minimum, people that work 40 hours a week should be entitled to a basic viable standard of life then we set the local minimum wage at three times the average rent for a one bedroom.  That rate will change annually; however, once a laborer is contracted at a certain rate, their wages will not decrease. 

For example, let’s say in 2020 the formula dictates a minimum wage of $30 per hour.   If the following year, the average cost of living decreases and the minimum wage drops to $29 per hour, an employee making $30 an hour would not see a decrease in wages.  But if that company hired a new employee, they would make $29 per hour. 

But what about the plantation own —- …. I mean, the business owners? Right.

We definitely don’t want to squash the small businesses of color fighting upstream against the forces of White Capitalism.  We absolutely need to support small business owners of color.  Especially those from low income households that don’t have the same privileges of wealth accumulation that their white counterparts do.

For them, I would suggest that funding can be found in places like the Community Development Block Grants administered by the Department of Housing and Urban Development.  These grants have been notorious drivers of gentrification. Instead of using the $3.4 billion to destroy low income communities, this funding can be re-appropriated to serve as funding sources for small businesses – especially minority businesses in low income communities – to meet the requirements of the new minimum wage formula.

Funding can also be found by placing a heavy tax penalty on businesses that make a profit that exceeds a certain amount over their income.  This can serve as both a source of funding and an incentive for multi-million dollar businesses to curb exploitation on their own.

Ideally, instead of making poor people fight a two front war against business owners and landlords, business owners would be forced to put pressure on landlords to lower rent costs and do the work housing nonprofits are doing to pass legislation to control the cost of rent.  Landlords would also be in a position to pressure utilities and other businesses to lower the cost of goods and services. 

In either case, a new federal minimum wage formula would ensure that it would become the burden of the middle and upper classes to figure out how to survive without exploiting people instead of a burden for poor people to figure out how to survive without the basic resources to just live.

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