What Living on an $11 Minimum Wage Looks Like
Wal-Mart (NYSE: WMT) has decided to raise the minimum wage it pays workers to $11 an hour, following in the footsteps of Target (NYSE: TGT), which made the same move in September 2017.
Both companies deserve credit for proactively raising wages. Yes, their hands were largely forced by a tightening labor market, but neither retailer had to institute a companywide policy. Both could have chosen to pay more where necessary and less where possible.
Making $11 an hour is certainly better than earning the $7.25-per-hour federal minimum wage. It's also an improvement over every state's minimum except for those of California ($11), Massachusetts ($11), Washington ($11.50), and the District of Columbia ($12.50).
But can someone actually live on $11 an hour? In some markets, the answer is yes, but in many parts of the country, $11 is simply not enough to provide basic needs such as housing, food, clothing, and healthcare.
Wal-Mart has raised its minimum hourly wage to $11, effective February. Image source: Wal-Mart.
How far does $11 an hour go?
While it's difficult to pick a region that represents the average cost of living in America, Minnesota comes pretty close. The state ranked right in the middle of GoBankingRates' cost-of-living survey covering all 50 states plus Washington, D.C. Minnesota has five different metropolitan areas, and St. Cloud sits near the midpoint in terms of living wage -- the amount required to support an individual and any dependents -- according to data provided by MIT.
That means St. Cloud provides a reasonable example of how far $11 an hour will go for an American with a typical cost of living. All calculations assume a person works 40 hours per week, 52 weeks per year. At $11 an hour, that comes out to $22,880 a year.
Hourly Wages | 1 Adult | 1 Adult 1 Child | 1 Adult 2 Children | 2 Adults (1 Working) 1 Child | 2 Adults 1 Child | 2 Adults 2 Children |
|---|---|---|---|---|---|---|
Living wage in the St. Cloud area | $10.64 | $23.00 | $29.16 | $21.95 | $13.09 | $15.91 |
Required annual income before taxes | $22,136 | $47,841 | $60,663 | $45,646 | $54,467 | $66,172 |
Data source: MIT.
As you can see from the data above, an $11-per-hour minimum wage does count as a living wage for a single adult in the St. Cloud area. Add in even a single child, however, and $11 is less than half of what is needed to get by. And even with two working adults who have only one child, you can see that $11 an hour leaves the family short by about $8,700 a year.
What does this mean?
This is just one example that falls roughly in the middle. If you live in a cheaper market, $11 an hour goes further, and it may be enough to qualify as a living wage. Of course, in pricier locales, a person earning $11 an hour will be even further behind.
What this shows is that even though companies like Wal-Mart and Target have taken a step in the right direction, they still don't pay workers at the bottom enough to get by in many markets. Perhaps more notable is that the federal minimum wage is woefully inadequate, and even states that have set a higher bar have not pushed numbers high enough for many people to make ends meet.
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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
