CA Freebies Enrich Low-Wage Workers

29 Nov, 2010 by CalWatchdog Staff

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NOV. 29, 2010

By WAYNE LUSVARDI

Contrary to half-truths by both liberals who believe the minimum wage is a poverty wage or conservatives who believe it creates more unemployment and sends jobs overseas, at least in California minimum wage is a ticket to enjoying more disposable income than the median wage earning family — not through the mandated boost in wages, but because the minimum wage opens the door to myriad welfare programs paid for by tax dollars. Minimum wage is a ticket to qualifying for a number of aid programs that boosts a family’s expendable income to almost 25 percent more than a California family earning the median income who do not qualify for any income assistance or tax credits.

A working family of four with one wage earner at $8 per hour in California has 23 percent more expendable income, after receiving an earned income tax credit, food stamps, free school lunches, Medicaid and Section 8 housing assistance, than the same family earning the median income of $61,154 ($28 per hour) where an employer pays for the majority of medical insurance costs.

The stimulus for this conclusion is a Web post floating around the Internet claiming that a working family has more disposable income from a minimum wage job plus all the qualifying entitlements than if the same family was making the median income.

This writer tried to replicate this finding to see if was valid but with more refined and documented data from California. A comparison was made in California of a family of four with one working parent and two school age children living in a two–bedroom apartment based on varying income levels and assumptions:

1. Part Time Worker – Working one week per month at minimum wage ($8/hour) assuming qualifying for free childcare, earned income tax credit, food stamps, school lunches, and Section 8 rental housing assistance.

2. Minimum Wage Worker – Working full time at minimum wage ($8/hour) assuming qualifying for free child care, earned income tax credit, food stamps, school lunches, and Section 8 rental housing assistance.

3. 50 percent Median Income Earner – Earning 50 percent of the median household income ($14/hour) assuming an employer pays the majority of medical insurance costs and household qualifies for earned income tax credit.

4. Median Income Wage Earner – Earning the median household income ($28/hour) assuming an employer pays the majority of medical insurance costs.

It was assumed that all four families lived in a two-bedroom apartment in San Diego County where the county median household income ($62,820) is approximately the same as the state median income ($61,154). Rents, utility costs, transportation costs and household expenses were based on San Diego County data from the county housing authority and from the California Budget Project – 2010: How Much Does It Cost To Raise a Family in California? (see link at bottom). The table below summarizes the results of this exploratory study. Links on the sources of data relied upon are found at the bottom.

Money earned in a year	$4,000 1 week/month @ $8/hour	$16,000 @$8/hour	$30,500	$61,154
Percent of Median Income	6.5%	26%	50%	100%
Payroll & Federal Income Taxes	($0)	($0)	($0)	($3,531)
Child Care Cost 2-school age children	$0	$0	($5,337) 17.5%	($10,792) 17.5%
California Income Tax	1% $0	2% $0	6% ($324)	9.3% ($1,366)
Earned Income Tax Credit	$1,610	$5,036	$3,126	0
Food Stamps CalFRESH	$8,016	$8,016	0	0
School Lunch Program (NSLP)	$2,371	$2,371	0	0
Medicaid CHIP ***	$0	$0	($2,856)	($2,856)
Rent Cost with Section 8 Rent Subsidy **	($1,450) **	($4,350) **	($13,584)	($18,000)
Utility Bill Cost with Subsidy	($362)	($1,450)	($1,200)	($1,200)
Transportation	($324)	($1,296)	($3,564)	($3,564)
Misc. Expenses	($479)	($479)	($479)	($479)
Total Expendable Income	$13,382	$23,848	$6,282	$19,366
Percent of Expendable Income of Median Family	69%	123%	32%	100%
Source: Wayne Lusvardi 11-23-2010 *** – employee’s share of medical insurance

Minimum wage can’t be looked at in isolation from the full cafeteria of income assistance programs for which it serves as an entry pass. Singularly looking at minimum wage is like finding the tree and missing the forest.

When Gov. Arnold Schwarzenegger called for state employees to be paid the minimum wage in lieu of their salaries to cure the state budget deficit he must have known this would have increased the welfare burden in California, albeit possibly shifting it onto the federal government. State employees and unions may not have realized that minimum wage guaranteed more disposable income than the median income wage earner, albeit without all the lucrative retirement benefits and Cadillac medical insurance coverage.

Given the symbiotic relationship between minimum wage and the whole bureaucratic vending machine of income assistance programs, California’s perpetual budget deficits may have been even larger if the number of minimum hourly wage workers in California had not fallen from over 300,000 in 1998 to about 75,000 in 2007.

It may have been no coincidence that The Cash For Clunkers program offered a $4,500 tax rebate to trade in an old car, paradoxically allowing the middle class wage earner to catch up with the net income of the minimum wage household instead of the other way around.

It is partly true that “the true minimum wage is zero” as economist Tom Sowell once stated if by this he meant that a minimum wage job might create two outsourced jobs in a zero sum game. Minimum wage has many aspects and many layers of meaning to different people depending on their social location.

But recipients of minimum wage in California apparently receive a $4,500 annual annuity for a family of four with one wager earner and two children. A $4,500 annual payment compounded at 5 percent over 30 years reflects about $10,000 per year. It is no wonder that Democratic politicians and unions argue for the minimum wage so strongly for it surely must buy votes for an effective net income premium of $4,500 per year.

This also refutes the half-truth that you “can’t support a family on a minimum wage.” It is true you can’t support a family on minimum wage alone, but if you know how to work the system you can realize more net income than white-collar workers with much more education and training. To the contrary, you can support a family on a minimum wage and you can afford luxuries like a new car and a flat screen TV. Contrary to socialist U.S. Sen. Bernie Sanders of Vermont the minimum wage together with its qualifying income supplement programs is most definitely not “a poverty wage.”

Where minimum wage jobs are given to undocumented persons who may not be able to qualify for the whole range of income assistance programs this would run counter to apparent social policy to wrap a “safety net” around minimum wage jobs. The whole package of minimum wage income supplement programs seems to follow a social policy that no full time working family shall be deprived of the means to at least appear to be in the middle class.

The above comparison intentionally does not take into consideration other welfare transfers such as a homeowner’s mortgage interest deduction because it only compared families in rental housing. Neither was a comparison made with two wage earner families, which would have also been apples and oranges. The above conclusions are tentative and are subject to modification based on better data and analysis or assumptions.

A provisional conclusion is that minimum wage in California is an annual winning lottery ticket not only into the middle class but a big leap-frog over the working class one earner family.

Links to sources consulted:

Making Ends Meet – How Much Does it Cost To Raise a Family in California?

Fed income tax calculator

Cal Income Tax Rates

Earned income calculator

Child Care Cost – California

California Minimum Wage

Food Stamp Eligibility Standards

Child care by state cost

School Lunch Program Benefits

Medi-Cal Benefits

California Median Household Income