April 4, 2008
Wage Ain't Nothing But A Number
Photo by Marc Lostracco.
Last week, minimum wage was raised to $8.75 an hour in the first of three scheduled increases. According to the arguments provided in the media (and on Torontoist), an increased minimum wage is necessary to help people make ends meet, but could force businesses to cut jobs to accommodate the increased costs.
From a numbers point of view, the raise was a necessary antidote to the minimum wage being frozen at $6.85 from 1995 to 2003. Using the Consumer Price Index for Toronto, $8.75 adjusted for inflation ends up being $6.85 in 1995 dollars. Businesses caught off-guard by this year’s minimum wage increase must be pretty naïve to not realize that, after eight years of locked minimum wage rates, a correction was coming. However, each increase (or decrease) of the minimum wage by the government must be justified as the costs come off the back of the employers.
2010: A Wage Odyssey
To investigate what a salary provides, Torontoist has sketched out budgets for a full-time worker either making the low-income threshold determined by Statistics Canada ($22,000 annually) or the current minimum wage ($8.75 per hour, or $18,200 annually).
Naturally, one budget can't speak for all people; however, the budget helps suggest the amount of flexibility and reach minimum wage has. Priority was given to housing, food, and health, with the remainder of the budget going towards luxuries that provide a quality-of-life in Toronto. (Quality-of-life is relative, and will shift as societal norms change. For example, a person unable to purchase a computer would be considered to have a lower quality-of-life.) The first budget is for a person at the low-income cutoff.
$22,000 A Year: 75% of Earnings Goes To Necessities
A single worker in Toronto making $22,000, or around $10.60 per hour for a 40-hour work week, could spend almost three-quarters of their after-tax income on enjoying a basic quality-of-life ($1,185 out of a $1,605 monthly salary).
A single worker would probably live with other people to help lower communal costs, so rent was set at $700 including utilities. An additional $100 was budgeted for clothing, and cleaning/personal hygiene supplies.
A monthly grocery budget of $225 provides for three meals daily (though Canadians tend to spend around 10% of their income on food, lower-income earners spend proportionally more).
To get to work and back, this scenario relies on public transit. The Metropass costs $100 on the yearly plan.
Finally, as the cost of prescription drugs, dental treatment, and emergencies can be daunting, basic health insurance was purchased at $60 a month.
Within One Year: LCD TV, MP3 Player, Cell Phone, and Desktop
$240 would go towards purchasing electronics and entertainment, which are expenses tied to quality-of-life. Although not necessary for survival, it's important to be able to enjoy a night out or two, and to communicate with loved ones.
In the first year, a person could accrue $140 monthly to put towards the purchasing of electronics, such as a 26” LCD television, a DVD player, a low-end MP3 player, and a desktop computer (using the television as the monitor). After the first month, a worker could afford a new mobile phone with a 200-minute pay-as-you-go plan from Virgin Mobile. Within five months, he or she could afford the television and the DVD player. By nine months, he or she could purchase the music player and the desktop computer. With equipment costs out of the way, the budget sustains basic, low-speed internet access and basic cable television (both with Rogers), with enough left over for four DVD rentals per month.
Each month also provides $100 for entertainment and miscellaneous expenses.
On this frugal budget, there's still $180, or almost 10% of their pre-tax income, for savings. Is the lifestyle laid out by this budget considered living poorly?
Current Minimum Wage Gives Two-Thirds Less To Spend On Non-Necessities
It's easier to make such a distinction if one is living off of today's minimum wage. Per month, a person would take home $1,340, a figure that requires most items from the previous scenario to be scrapped—remember that the necessities cost $1,185 monthly, and a low-end pay-as-you-go phone costs $25 per month.
A worker on today’s minimum wage could then expect to have $130 remaining to split between savings and entertainment, about a third of what the worker from our first scenario had. The priority should be on saving for the future, so $90 a month (or 7% the minimum wage income) would be locked in the back. $40 is left for entertainment (and miscellaneous) expenses, equal to going out for dinner and a movie once a month.
As it stands, with 90% of income going towards necessities (including a phone), the current minimum wage doesn't leave much grace for unexpected expenses. One way to maximize earnings would be to continue to split the cost of accommodations by living with three or four other people. Looking at this budget, one wonders how minimum wage was determined to begin with. Before this month's increase, workers on minimum wage survived on about $1,600 less (a whopping $130 less per month).
Inflate Minimum Wage Properly
This admittedly simple budget suggests that within two years—as minimum wage grows from $8.75 to $10.25—the room for savings and spending on entertainment will grow by almost triple. Most likely, the minimum wage by 2010 will be suitable for most single people to have a comfortable quality-of-life. As such, to prevent further arguments by either side, the government should stop any future heavy-handed manipulation of minimum wage by pegging it to inflation starting in 2011.
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Try putting yard sales or Goodwill into the acquisition plan for electronics, clothes, furniture etc.
Live close to work, then you can walk or cycle to save a bundle.
Brew your own beer if you need to get loaded for entertainment.
Ditch the phone, cable, internet or renting DVDs. Read the daily paper and surf the web at the library, take out books and movies.
Buy reduced price rotting vegetables, day old bread, learn to make a hearty soup. Don't buy packaged food, except for cereal.
Then you can take a date to a fine restaurant once a week and then get laid.
But for goodness sake, wear protection.
I can't imagine having children on a minimum wage.
"However, each increase (or decrease) of the minimum wage by the government must be justified as the costs come off the back of the employers."
I have to disagree that employers shoulder the extra cost: wrong, consumers shoulder the extra cost. Employers are impacted in the short run as they adjust prices or their budgets, but the consumer always pays in the end. There is no free lunch.
If as suggested the government adjusted minimum wage regularly and predictably, employers could better plan their prices and pass the cost on to consumers more smoothly.
(On a related note, the government doesn't pay for programmes, or provide "free" healthcare. Citizens and taxpayers do."
Cheers,
Tuds
Find freebies for tv's and dvd players, as they get thrown out from families that are upgrading their stuff. For desktop computers, if its just for surfing the internet, its possible to get one for under 100 dollars, if its an old one. Under 30 dollars for a cheap mp3 player.
$100/yr for pay as you go from 7/11 speakout (comes with a phone during times of the year) or from Rogers. Electronics are on a one time buying basis.
There's a lot of costs that you could cut, and really have a lot of extra income at the end of the year. Shove it into the new tax-free savings account and you have income every year, and snowballs afterwards, too a pretty big lump sum in 10-15 years.
Hey kendrew,
Good suggestions for anyone to save money and reduce the impact on the environment as a bonus. But on $1,600 a month, almost all your money will go to rent, food, and a TTC pass. And I think $225 a month for groceries is grossly under-estimated if you are brown-bagging it and eating breakfast and dinner at home every day.
I think many of us would do well to reduce our spending withe four Rs, but the issue at hand is to raise the minimum wage up to a "living wage".
Cheers,
Tuds
Employers know how to deal with higher costs like wages, move to lower cost jurisdictions. Just watch to contortions Obama and Hillary are going through over NAFTA in the rust belt states. They didn't lose jobs in Ohio because of NAFTA, they lost jobs because they cost too much.
Ontario's government is crying the blues about job losses and yet is increasing costs. Granted your average auto worker is making an order of magnitude more than a minimum wager earner, but the costs are as already observed bourne by the consumer. Increased costs mean fewer jobs. Sure they'll always be a few "suits" making the big coin, but for the rest of us, "there by the grace of god go I".
The competitive pressure on any company is always to reduce costs. Wages and benefits are one component of costs. Increased costs has a ripple effect through the entire economy (ever heard of inflation?).
So you give the folks down at the local Timmie's a big increase (percentage wise) and next thing you know the price of your double-double goes up. So now you're hitting the bricks with your buddies from the local to get a big increase and COLA because you can't afford to enjoy a Timmie's from the drive-thru in your SUV.
Then the cycle repeats itself, the folks down at Timmie's are out of luck because that increase turned out to be smoke and mirrors.
What we need is real meaningful employment and not McJobs without pensions or benefits. When companies are crying for help they'll pay top dollar and well above any government mandated minimum wage!