How Does Minimum Wage Affect Low-Income Families in America?

A minimum wage is the lowest hourly wage that employers can legally pay to workers. Children and parents in low-income families, especially those that rely on minimum-wage earners, are more susceptible to financial hardships than higher-income families.

Minimum Wage

The federal minimum wage was enacted in 1938 as 25 cents per hour. Since then, there have been 21 increases. Effective July 24, 2009, the federal minimum wage is $7.25 per hour. Laws in many states stipulate that a state's minimum wage rates applies only if it is higher than the federal minimum wage.

Low-Income Criteria

The following maximum income requirements for low-income families are for all states except Alaska and Hawaii. In order to be considered low-income in 2010, a family of two must receive less than $16,245 in yearly income. A family of three must have an income below $27,465, and a family of four must make below $33,075. For a family of five, below $38,685 is considered low-income, as is below $44,295 for a family of six.

Access to Goods and Services

In addition to below-poverty-level earnings, many low-income families do not have access to, or cannot afford, critical resources often available to higher-wage earners. The struggle for adequate resources is often compounded when low-income families rely on minimum-wage workers. Even a substantial raise in the minimum wage may not alleviate many of the hardships faced by low-income families.

Many low-income families do not have access to affordable health insurance. Most jobs that pay minimum wage do not offer their employees health care, or if they do, the employee cannot afford it. Low-income families that rely on minimum-wage workers are more likely to be uninsured. Parents working for minimum wage are also not likely to receive paid sick days if they, or their children, are ill. Additionally, minimum-wage workers typically can't afford basic quality child care.

Alternative: A Living Wage

Minimum wages are widely considered inadequate to meet the basic needs of low-income families. Since 1994, 40 cities have passed “living wage” ordinances requiring that businesses under contract with or receiving assistance from the city pay employees a living wage. This living wage should allow them to raise their families out of poverty. Living wages are significantly higher than the minimum wages.

Analysis

In 1999, Jared Bernstein, an economist at the Economic Policy Institute, stated in congressional testimony that evidence supports that minimum-wage increases reduce poverty but that the effect is minimal. He concluded that food stamps were phased out during minimum-wage increases and that this partially offset the benefits of wage increases.

According to a 2002 research brief by the Public Policy Institute of California, enacting a living wage raises the household income of low-wage workers while simultaneously decreasing employment, or the amount of available jobs. However, the evidence indicated that, over all, living-wage ordinances could reduce the rate of poverty by 1.4 percentage points.

References

• Center for Economic and Policy Research: Impact on Proposed Minimum-Wage Increase on Low-Income Families
• Public Policy Institute of California: How Living Wage Laws Affect Low-Wage Workers and Lo-Income Families
• U.S. Department of Education: 2009 Annual Low-Income Levels
• Economic Policy Institute: Minimum Wages and Poverty