October 17, 2014

Who is a Low Wage Earner?

Headshot 3.13 cropcompressBy Karen Sternheimer

The mayor of Los Angeles has proposed increasing the minimum wage to $13.25 an hour in the city, and requested an analysis of the potential impact an increase would have on workers and businesses.  Researchers from UC Berkeley’s Center on Wage and Employment Dynamics produced a report and concluded that more than a half a million workers in the city would get a raise (those earning minimum wage and those earning below the proposed minimum wage).

The report provides a demographic profile on these low-wage workers. They comprise 37 percent of those earning wages in the private sector; 39 percent of women and 35 percent of men. The vast majority—83 percent—are persons of color.

Despite the widespread belief that most low-wage workers are teens earning extra spending money while attending school, in Los Angeles few of them are teens; 38 percent of low wage workers are in their twenties, nearly 22 percent are in their thirties, and 37 percent are over forty. The majority work full time, and 36 percent have children.

The bulk of these workers are employed in restaurants, retail, health services, and administrative and waste management services. Right now, their median income is $16,000; in 2014, the federal poverty level for a two-person household is $15,730.

Much of what they earn goes to pay rent. The average rent in Los Angeles County is $1,471, more than the median monthly earnings of a low-wage worker. A recent report determined that Los Angeles was the least affordable city for renters in the country when comparing the cost of renting to median income. It is also the city with the highest proportion of renters compared with home owners; 52 percent rent their homes compared to the national average of about 35 percent. On average, renters in Los Angeles spend about 47 percent of their income on housing, according to the report.

This should be a wake-up call for anyone who is thinking about moving to Los Angeles. It’s tempting to suggest that low-wage workers move somewhere cheaper. They often do, and spend hours commuting by bus or by car. But we still need people to do the work that low-wage workers do if we want to go to restaurants, shop in retail establishments, have clean office buildings or health aids for those who are ill.

The UC Berkeley report concludes that raising the minimum wage would increase incomes of low-wage workers by $3,200 a year, who would likely spend much of this on living necessities and thus reinvest it in their communities. The report does note that restaurant prices could increase by 4.1 percent (meaning a ten dollar meal would cost $10.41) and that some businesses might relocate out of the city. The authors summarize the impact as modest:

Research evidence indicates that the costs of minimum wage increases are absorbed through reduced worker turnover, improved worker performance and small one-time increases in restaurant prices. Increased costs may also be offset by the additional spending by low-wage workers and their families, acting as an economic stimulus in local economies.

They do acknowledge that the restaurant industry might be reduced by about 560 jobs during the transition to higher minimum wage as well.

Minimum wage jobs come at a cost, and not just to those who struggle to get by on little pay. The report notes that turnover and reduced productivity are factors for many low-wage jobs. High turnover among low wage workers means that employers need to spend time and resources constantly hiring and training new workers. The problems that come with low-wage work include financial stress, which can lead to health problems and reduced productivity.

We all pay when wages are low. Low-wage workers earning less than $1,265 a month qualify for the federal Supplemental Nutrition Assistance Program (SNAP), commonly called food stamps. So taxpayers effectively subsidize businesses that don’t pay their workers enough for the basic costs of living.

We might also hear people suggest that these workers go to college and get better jobs, but the UC Berkeley report notes that 46 percent have attended college and 14 percent even have bachelor’s degrees or higher. “Right now, minimum wage is not a stepping stone,” one of the study’s authors told the Los Angeles Times. “It’s a place where people are stuck for long periods of time.” Juggling multiple jobs with varying schedules, no paid sick leave or vacation time means that low wage-workers have a hard time getting by, let alone getting ahead.

Many people find themselves among the working poor in our service-oriented economy, and it's common to hear individualized solutions to address their challenges, despite the link between low wage work and social structure. What structural solutions might help address the challenges of the working poor?

Comments

Great article. I believe the minimum wage should be raised. If business owners would stick it and get pass the initial increase, they will likely see turn-over rates decrease, happier and healthier employees, which leads to reduce training cost. Also, consumers would absorb a .41 cent increase if it means that they are getting quality service from an employee they are familiar with instead of being served by new people every time they visit. Relationships can develop and customer loyalty will be apparent.

D. Brown

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