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Beaconomics: Facts and figures behind debate over minimum wage

This article first appeared in the St. Louis Beacon, Aug. 23, 2013 - Is $15 an hour to flip burgers or toss pizzas a realistic demand? When was the last time the federal minimum wage -- $7.25 per hour -- was adjusted? Who are America's minimum-wage workers? What is a living wage?

The Beacon has been looking into the many issues surrounding the recent protests by fast food workers demanding higher wages and the right to organize. Here you will find background information about some of the issues behind their demands and the growing debate over the federal minimum wage.

Another strike set for Aug. 29

Fast food workers are determined to have it their way. They're calling for another national strike on Aug. 29 that they hope will be bigger and spread to more communities than their earlier actions.

STL735, which organized local protests in May and July, is urging participation and support for the protest, as are labor unions.

Organizers are using social media to spread the word, including the Twitter hashtag #829strike. A website called "Low Pay Is Not OK” offers samples of strike letters to be given to management and tips for organizing walkouts. Participants are urged to tweet and post pictures of their signs and protests on Facebook.

On its website, the AFL-CIO notes that the strike will be held on the day after the 50th anniversary of the 1963 March on Washington for Jobs and Freedom led by Dr. Martin Luther King.

"One of the historic march’s demands was to ‘give all Americans a decent standard of living,’ and it called for a minimum wage of $2 per hour. Adjusted for inflation, that would equal $15.26 an hour today,’’ says the AFL-CIO statement

A trade publication for the foodservice industry -- Nation’s Restaurant News -- notes that the Aug. 29 strike is targeted against the entire "quick-service” industry and offers owners and operators tips for dealing with the strikes. The report includes statements from several fast food giants emphasizing the positives of working at their outlets. They stress their importance as workforce entry points and say they offer competitive compensation. 

Federal and state minimum wage

The following facts and statistics are from the U.S. Bureau of Labor Statistics:

  • The federal minimum wage is a provision of the Fair Labor Standards Act. The current rate of $7.25 an hour was set in July 2009. (When the act was first enacted in 1938, the minimum wage was 25 cents an hour.)
  • Eighteen states, including Missouri, have minimum wages higher than the federal wage. In Missouri, the minimum wage is $7.35 per hour, an increase that went into effect on Jan. 1. In Illinois, the minimum is $8.25 an hour.

Who are the nation's minimum wage workers?

Workers who earn minimum wage are a relatively small share of the workforce.

  • In 2012, 1.6 million workers paid by the hour earned the federal minimum wage and about 2 million earned below the minimum wage. (Note: The fact that workers earn below the minimum doesn’t necessarily point to violations because of various exemptions in the law.)
  • About half of workers earning the minimum or less were under age 25. Six percent of women who are paid by the hour were paid at or below the federal minimum.
  • For hourly workers who are 16 or older: About 10 percent who don’t have high school diplomas earned the minimum wage or less. That compares to 4 percent for high school graduates and 2 percent for college graduates.
  • About 19 percent of workers in the leisure and hospitality industry were paid the minimum or less in 2012. These workers represented about half of all workers paid the minimum wage or below.
  • In 2012, 1.5 million Missouri workers were paid by the hour and 49,000 of them earned the federal minimum wage of $7.25 an hour. Another 48,000 Missouri workers earned less than the minimum wage.
  • Missouri workers who earned the minimum wage or less comprised 6.3 percent of all hourly workers in the state. Seventy percent of those workers were women.

Living wage vs. minimum wage

Fast food workers argue that the minimum wage -- though legal -- is far below what is defined as a living wage: enough income to pay for the basic necessities of life. That includes housing, food, clothing, utilities, health care and transportation.

  • An hourly worker making minimum wage ($7.35 per hour) in Missouri would earn just over $15,000 a year.  
  • According to federal guidelines, the current income poverty threshold for a family of four is $23,550.

What does it cost to live in St. Louis?

Analysts have developed differing formulas to calculate the cost of living, which varies by region. The reports indicate that minimum wage jobs fall well short of supporting the basic needs of St. Louis residents. Here are two examples:

The Economic Policy Institute has developed a "family budget calculator” for 615 U.S. communities based on six family types that vary by number of parents and children.

According to the institute's index, a parent with one child in the St. Louis metropolitan area would need to earn $46,858 a year to maintain an "adequate but modest living standard.”

That income number was based on these monthly costs:

  • housing - $830
  • food - $369
  • child care - $551
  • transportation - $480
  • health care - $989
  • other necessities - $307
  • taxes - $379 
  • necessary monthly income - $3,905.

For a family of two adults and two children, the institute places the cost at $64,332 a year or $5,361 per month.
A study by an MIT professor calculates living wage by county. According to that table, the living wage for a single adult in St. Louis would be $8.69 an hour, or $17.45 an hour for an adult with one child, about $36,000 a year. For a family of four -- two adults and two children – the living wage would be $18.05 an hour, about $37,500 a year.

City's living wage ordinance

St. Louis has an ordinance that sets a "living wage” for employees covered by city contracts. The wage is determined by a formula that takes into account the changing federal poverty level. Currently, that wage is $12.21 an hour, if health benefits are provided and $15.92 an hour if health benefits are not provided.

Proposals to increase the federal minimum

Policymakers have floated a number of proposals to increase the federal minimum wage, though none are suggesting the $15 an hour sought by fast food workers. 

  • President Barack Obama has proposed increasing the minimum wage in stages, bringing it to $9 an hour by the end of 2015. Future increases would then be indexed to inflation.
  • In March, some Democrats who don’t believe that Obama’s plan goes far enough, introduced proposals in both the House and Senate that would increase the minimum wage to $10.10 an hour within three years. 
  • A high-profile group of economists in June petitioned policymakers in support of a $10.50 minimum wage.

That drive for the $10.50 minimum wage was led by economists Robert and Jeanette Wicks-Lim of the Political Economy Research Institute(PERI) at the University of Massachusetts Amherst. Their petition argued that businesses could absorb the wage hike to $10.50 through minor increases in prices and productivity -- and that even fast food restaurants that employ a disproportionate share of minimum wage workers would likely see their overall business costs increase by about 2.7 percent.

How much for that burger?

Some numbers crunchers have attempted to calculate the impact of a wage increase on the price of a burger. Others say there are too many unknown factors to do that accurately.

  • One of the earliest and very well-publicized reports was later discredited because it was based on faulty information. Using annual reports and investor data from McDonald’s, a business graduate student from the University of Kansas had forecast that the price of a Big Mac would rise by 68 cents to cover the cost of a $15 hourly wage for fast food workers.
  • Using McDonald’s as an example, the PERI economists who are pushing for the $10.50 minimum wage forecast that raising the price of a Big Mac by a nickel would cover half of the wage hike and "the remaining half of the adjustment could come through small productivity gains or a slightly more equal distribution of companies’ total revenues.”
  • Several contributors to Forbes have suggested theories on opposite poles. Economic consultant Adam Ozimek warned that increased wages would lead to fewer jobs, as companies would replace workers with machines and Tim Worstall believes the price to consumers wouldn't go up at all -- because prices for Big Macs are determined more by competition than by production costs.
Mary Delach Leonard is a veteran journalist who joined the St. Louis Beacon staff in April 2008 after a 17-year career at the St. Louis Post-Dispatch, where she was a reporter and an editor in the features section. Her work has been cited for awards by the Missouri Associated Press Managing Editors, the Missouri Press Association and the Illinois Press Association. In 2010, the Bar Association of Metropolitan St. Louis honored her with a Spirit of Justice Award in recognition of her work on the housing crisis. Leonard began her newspaper career at the Belleville News-Democrat after earning a degree in mass communications from Southern Illinois University-Edwardsville, where she now serves as an adjunct faculty member. She is partial to pomeranians and Cardinals.