Tag Archives: living wage

Poor man’s game theory

Happy St. Patrick’s Day!  Due to the holiday, I am holding off revising a previous post for when I can give it a more thorough treatment, and will instead motivate that post with this one.  The report “Work vs. Welfare” from the Cato Institute tries to assert that the welfare system in the United States provide such lucrative benefits that there is a disincentive to work.  This couldn’t be more inaccurate.  After correcting some of the paper’s mistakes, it will be clear that the solution is not to cut welfare benefits, but raise the minimum wage.

The 2013 report inflates the figures as much as possible; every number is the maximum possible award for that program.  More over, it assumes that every program is qualified for.  I am not sure if such a person exists!  There is also no mention of the time limits on some of the benefits.  While SNAP (food stamps), and many of the other programs have no limits, the much-maligned TANF (cash assistance) is limited to 24 months consecutively, and a lifetime limit of 60 months.  This cash assistance can’t be a significant incentive not to work, as it truly is temporary (Thats what the “T” stands for!).  It is also questionable to consider Medicaid, since even if they where working they may still receive it. Also, no other measures of income (hourly wage, salary, ect.) include healthcare.

Adjusting for these values, we get a more accurate picture.  Using the same family of three used in the paper, and taking Michigan as an example, we see that the amount available to entice people away from work is 5868(TANF) + 8344(Housing) +980 (WIC) + 750(utility credits) =15,942.  The poverty level is 19530.  Adding back in the temporary cash benefits of $6,312 provides $22,254.  In actuality the Cato’s Institute’s typical welfare family is spending time falling in and out of poverty with the availability of their cash benefits, assuming of course they qualify for the maximum in every single program.

Breaking this down to hourly rates, we see that on cash assistance, working 40 hours a week (the national average is 34.2), and working every week in the year, the family make $10.70/hr, and when they are without the TANF money, the family makes $7.66/hr.  The minimum wage in Michigan at $7.40/hr.

The minimum wage is far to low in the United States.  While the above analysis shows that it is technically possible to beat the minimum wage with benefits, even at the maximum amount it is only by 16 cents an hour, which is not much of an incentive.  What it does show however is a drastic shortcoming in the minimum wage.  Franklin Roosevelt championed a minimum wage as a living wage, proclaiming “No Business which depends for existence on paying less than a living wage to its workers has any right to continue in this country.”  In my next post, I will consider the economic ramifications of a minimum wage that would ensure the average full-time working American at such a wage would exceed the poverty threshold.