#FunWithMath - Part 2, Minimum wage vs. Housing

  There has been lots of talk about raising the minimum wage to $15.  I have done a number of calculations about this - not to prove or disprove any one side, but just to show the math behind the numbers.  This will be a multi-part series with the end-goal of education - There will be math... and math always evokes emotion.  I'm curious what questions come up. Please let me know.

This week's blog focuses on housing.  Since both rent and housing prices vary so much nationwide, there is not a general 'national average', so instead I'll focus on a few regions of the country along with the minimum wage in that region.  For instance, federal minimum wage is $7.50, but Ohio has a state minimum wage of $8.55 per hour.

According to many sources, an individual should not spend more than 30% of their income on rent and utilities.  How does that math translate to minimum wage?  

Someone living in Ohio making minimum wage would earn about $1348 per month for 40 hours per week. This is after about 9% withholding for taxes and social security (Here is a calculator, though I used excel so numbers may not match exactly.) If we take 30% of $1348, we get about $400 per month for rent and utilities.  According to RentCafe, this price point doesn't exist, and only 20% of apartments will come in under $700 per month.  At $700, someone would be spending over 50% of their income on rent, or nearly twice the recommended amount.

These numbers held pretty true in other locations I tested.  In Rochester, NY the average price of an apartment was about $1090 per month. With minimum wage in New York at $12.50 per hour, someone would spend 55% of their post-tax income on housing.  One of the worst ratios I found was Jackson, Mississippi.  Minimum wage in Mississippi is $7.25 and the average apartment cost $835 which meant someone working minimum wage for 40 hours a week would spend 73% of their post-tax income on rent. It also means that if two people shared a one-bedroom apartment, they'd still spend nearly 40% of their combined income on rent. And that is assuming both can find jobs that provide a guaranteed 40-hours per week..

Projected yearly earnings for $15 minimum wage

Yes, boroughs of New York were worse, with someone from Brooklyn spending over 100% of their $15 per hour income on rent for a 650 square foot apartment, while someone in the Bronx would spend 70% for a similarly sized apartment. 

What is notable is that even if minimum wage was set to $15 per hour tomorrow (clearly not a plan) these ratios are still relatively high.  Someone would earn $2231 per month (post tax) working at a $15 minimum wage. The percentage spent on rent in Rochester, Columbus, and Jackson after the wage hike would be 33% for Columbus, 37% for Jackson, and 48% for Rochester.  

Again - will increasing the minimum raise solve these issues?  I don't know. I'm not a finance expert nor do I pretend to be one.  I can only speak in the here and now which tells me that living expenses far exceed what someone earning minimum wage could afford.

#FunWithMath part one - Minimum Wage Vs. College Tuition

 There has been lots of talk about raising the minimum wage to $15.  I have done a number of calculations about this - not to prove or disprove any one side, but just to show the math behind the numbers.  This will be a multi-part series with the end-goal of education - There will be math and math always evokes emotion.  I'm curious what questions come up. Please let me know .

My son is about to graduate college. He is at a two-year private trade school. I knew the cost of secondary education had gone up since I last attended, but it wasn't until I did the math that I realized how much it went up.  What baffled me was the rate that it went up when compared to the federal minimum wage.  Here is a chart of what I mean:

Let me interpret some of this for you.  The first three columns are data sets - year, the federal minimum wage, and the average cost of a 4-year public college per year.  I used values published by USA Today, but also found comparable numbers on other sites. 

That fourth column is the eye-opening one for me. That is how many hours a student would have to work to pay off a yearly tuition bill.  It is then broken into that student working either 40 or 50 weeks of the year. 

What this means: Back in 1980 a college student would have had to work 20 hours per week for 40 weeks to pay off their college tuition bill.  By 1990 it was 33 hours. By the year 2000 it was 41 hours.  Today it is 77 hours.... yes...  a student would have to work 77 hours PER WEEK for 40 weeks, or 62 hours PER WEEK for 50 weeks, to pay off their college tuition that year.  This would be on top of going to college classes, completing homework and labs, and other educational duties. 

What happens if we increase minimum wage to $15 per hour? The numbers of hours needed to work drops to 30 hours per week if the student works 50 weeks a year, putting us back to Generation X levels of the mid-1990s, but nowhere near the numbers for the Baby Boomer years.  For that to happen, minimum wage would have to be around $25 per hour. 

2020a with a $15 minimum wage, and 2020b with a $25 minimum wage

'A' gets the numbers back to 1993 levels while 'B' gets to the 70s.

It is physically impossible for college-aged students to pay for tuition with just "a good ole hard work ethic."  There are not enough hours in a year to do it.  This is a reason student loan debt is as high as it is.  Right now citizens in the US have $1,570,000,000,000 (that's trillion) in student loan debt, about $35,000 per borrower. And remember, this doesn't include anything other than tuition: books, meals, dorms, other fees - none of those are included in these calculations.  

I'm not saying raising the minimum wage would solve any of these problems - but clearly this is not a sustainable model for higher education in the country.