The Math of Low-Wage Jobs Isn't Mathing

Are wages too low, or are expenses too high?

“Why don’t they just get a job?” We often hear comments like this about people who are homeless or who receive government food benefits. We may have had this thought ourselves. But the reality is that many people getting government benefits are working, and more and more full-time workers are even falling into homelessness. The Washington Post reported on this discomforting trend yesterday, quoting people working 50-hour weeks or 11-hour shifts but sleeping in their cars because they can’t afford housing.

The se­vere truth of the Amer­i­can econ­o­my is that it de­pends on tens of mil­lions of  peo­ple work­ing in low-wage jobs, of­ten clean­ing, re­tail, food service, or care­tak­ing. In 2022, 30 million workers in their prime working years were earning low wages–less than $16.98 per hour. These jobs often provide no ben­e­fits, and may of­fer lit­tle job se­cu­ri­ty or con­trol over work­ers’ sched­ules.  More to the point, they also pay too lit­tle to meet ba­sic needs. The math does not work.

In 1996, President Clinton signed a bill that he declared would “end­ wel­fare as we know it.” The law, the Per­son­al  Re­spon­si­bil­i­ty and Work Op­por­tu­ni­ty Rec­on­cil­i­a­tion Act (PRWO­RA), end­ed the entitlement cash wel­fare pro­gram Aid to Fam­i­lies with De­pen­dent Chil­dren (AFDC). AFDC provided monthly cash payments to low-income families, with no cap on how long AFDC recipients could participate.

In the place of AFDC, the law cre­at­ed a new cash as­sistance pro­gram, Tem­po­rary Assistance for Needy Fam­i­lies (TANF). AFDC was an entitlement program, meaning it would enroll everyone eligible who applied, regardless of how much it cost. Un­like AFDC, TANF is a block grant pro­gram, giv­ing states broad dis­cre­tion in how they spend the funds: how much money to give recipients, what activities to require of recipients in order to continue participating, and for how many months they could participate. State flexibility under TANF goes so far, in fact, that some states have diverted money from their federal TANF block grant to fund seemingly unrelated activities.

The prom­ise of welfare reform was that it would not just re­move peo­ple from wel­fare, but it would move peo­ple into the work­force, giv­ing them the “dig­ni­ty” of work and hope for a bet­ter fu­ture (with­out re­ly­ing on gov­ern­ment re­sources). Ear­ly in my career I worked on re­search projects on so-called “wel­fare-to-work” and “work­fare” services. My naive­ly op­ti­mistic view at the time was that many peo­ple, agen­cies, and programs—as well as sig­nif­i­cant gov­ern­ment fund­ing—were ded­i­cat­ed to help­ing for­mer wel­fare re­cip­i­ents im­prove their lives. (This is not to say that I sup­port­ed welfare reform when it be­came law—I be­lieved then that it would cause severe pain to mil­lions of people, which it did.)  

As the ev­i­dence ac­cu­mu­lat­ed, it be­came clear that “wel­fare-to-work” and “workfare” were noth­ing more than ef­forts to force peo­ple into the low-wage la­bor sup­ply. As the wel­fare case­loads plum­met­ed, many of its for­mer ben­e­fi­cia­ries found them­selves employed in low-wage re­tail and ser­vice sec­tor jobs that had no po­ten­tial for growth into high­er wages, bet­ter ben­e­fits, or more re­spon­si­bil­i­ty. Worse, in or­der to keep their ben­e­fits, TANF re­cip­i­ents were forced to ac­cept jobs of­fered to them, and for­bid­den from quit­ting those jobs, no mat­ter how aw­ful or abu­sive they turned out to be.

Let’s do some low-wage household budgeting. The fed­er­al min­i­mum wage is $7.25 per hour, though some states set higher minimums. Full-time work at $7.25 per hour earns $15,080 per year, or about $1,257 per month. The fair mar­ket rent for a 2-bed­room apart­ment in Ok­la­homa, which has a below average cost of living, is $936 per month—that’s near­ly 75% of a full-time min­i­mum wage in­come, leaving $321 each month for oth­er ex­pens­es like util­i­ties, food, med­i­cine, trans­porta­tion, child care, and cloth­ing. (This is setting aside the fact that renting an apartment often requires providing up front the first month’s and last month’s rent, plus a security deposit equivalent to a month’s rent.)

Rent is con­sid­ered af­ford­able if it uses less than 30% of a house­hold’s in­come. Many households spend much more than 30% of their income on housing. The Na­tion­al Low In­come Hous­ing Coali­tion es­ti­mates that a min­i­mum wage work­er would have to work 88 hours every week to be able to af­ford a 1-bed­room apart­ment in Ok­la­homa. Al­ter­na­tive­ly, the min­i­mum wage would need to be in­creased to nearly $20 per hour for a min­i­mum wage work­er to af­ford a 2-bed­room apart­ment on full-time work (40 hours/week).

Stick­ing with Ok­la­homa for a mo­ment, the Eco­nom­ic Pol­i­cy In­sti­tute (EPI) estimates the fol­low­ing month­ly costs for a fam­i­ly of two adults and two chil­dren in the Ok­la­homa City metro area:

These expenses add up to $82,545 per year. Even with two adults work­ing for min­i­mum wage, a year of full-time work would earn them $30,160. Each of the adults would have to work the equiv­a­lent of near­ly three full-time jobs, or 109 hours per week, to be able to make ends meet ac­cord­ing to the EPI stan­dards.

Is this only a prob­lem in states that rely on the federal min­i­mum wage ($7.25/hour) instead of setting a higher min­i­mum wage? Consider Cal­i­for­nia, where the min­i­mum  wage is dou­ble the fed­er­al rate: $16.00 per hour, or $33,280 an­nu­al­ly. Statewide, on av­er­age, a min­i­mum-wage work­er would have to work 96 hours per week to af­ford a mod­est one-bed­room rental home.

Some cities in California, like San Fran­cis­co and Los An­ge­les, are much more ex­pen­sive than others, but basic needs are too expensive for low-wage workers even in less expensive cities. For example, EPI es­ti­mates that the above list of ex­pens­es would cost $8,269 per month in Ba­kersfield (Kern County), re­quir­ing an an­nu­al salary of $99,232. Two full-time min­i­mum wage work­ers to­geth­er would pull in $66,560 an­nu­al­ly, $32,672 short of what they would need to cover the ba­sic needs iden­ti­fied by EPI.

That assumes they have no emer­gency ex­pens­es or crises, and they have steady full-time work year-round. These are as­sump­tions low-wage work­ers can­not count on be­ing true. Cars break down. Child care falls through (if it is available or affordable to begin with). Work sched­ules are cut or re­arranged. Health crises may arise. Hous­ing may be­come un­liv­able, or a fam­i­ly may be forced out of their home by a shady land­lord.

Our economy ex­pects 30 million Amer­i­cans to work full-time for wages so low they can’t af­ford the ba­sics to live com­fort­ably. This is one of the root causes of poverty and food insecurity. We will not fight either effectively without making the math work.