In a job market like ours, with low union coverage and weak worker bargaining power, it takes persistently low unemployment to drive up the income of low- and moderate-wage workers. The chart distills the problem well by comparing the growth of different types of earners. The most striking finding, obviously, is the rise in wage inequality: Regardless of labor market conditions, the top just keeps pulling ahead. But the other lines tell an important story, too.
Since the early 1980s, there have been just two periods of real growth for these low and middle-wage workers: the high-pressure labor markets of the latter 1990s, and now. But you can’t really tell how low-income, working families are doing by looking at trends in figures like this one. You can tell that their real pay is going up, which for less-advantaged workers is a big deal. For too long, wage growth has been a spectator sport for these folks. But you can’t tell if they’re making enough for them and their families to get by, much less prosper.
For that, you must look at not just wage trends, by wage levels: the dollar values underlying the lines in the figure. Then you must compare that wage to the cost of maintaining a living standard that most of us would consider reasonable.
Consider, for example, the level of the 20th percentile wage, a good proxy for the earnings of low-wage workers. In 2018, it was about $12. For someone working full-time, full-year that comes to around $24,000. Now, that’s above the poverty line for, say, a single parent with two kids (about $20,000), but the poverty line is completely outdated and unrepresentative of what’s needed to make ends meet, especially in metro areas.
Based on that recognition, analysts have created family budgets: geographically specific measures of what families of different types would need to not just get by, but to afford decent housing, quality child care, non-skimpy health care, food and so on. For Ohio, the MIT budget calculator for a parent and two kids comes to about $56,000 before taxes, about the state’s median income. For Washington, D.C., that family would need about $70,000. Based on 2018 wage levels, even the median wage, which yields a full-time, full-year pretax income of about $38,000, falls way short.
Why do the budgets come in so much higher than the poverty line? Because the poverty line is based on the price of food in the 1950s, whereas the family budgets price out the full, contemporary market basket faced by working families with kids. The fact that the Ohio budget is about the same as the state’s median income doesn’t mean that half of Ohioan families are poor. Rather, it suggests that based on their earnings and on reasonable estimates of the costs of meeting their families’ basic needs, many come up short when trying to meet those basic needs.
All of the earnings figures here are pretax, meaning they ignore the costs of payroll taxes (the biggest tax for low-income workers) and the benefits of supports like the Earned Income Tax Credit and, since we’re talking about families with kids, the Child Tax Credit. Once we take these factors into account, the income of our single-parent (let’s say she has one kid under 6 and one older kid) earning the 20th percentile wage of $12 goes from $24,000 to almost $30,000, thanks to about $5,000 from the EITC, $3,000 from the CTC, minus about $2,000 in payroll taxes. One ambitious new proposal for families with young children would take this imaginary woman’s post-tax income up to $33,000.
Another key policy in this area is the minimum wage. A $15 minimum wage in tandem with the proposed credit expansions delivers a powerful one-two punch that takes this family’s post-tax income up to $36,500. That’s almost twice the poverty threshold, which, while a lower standard than the family budget, is still a worthy goal in this space.
In other words, when it comes to low-wage growth, the recent trend is welcome but insufficient for erasing years of stagnation. And when it comes to making ends meet, they still need help, from high-pressure labor markets, policymakers and legislators.