Low-wage economy has hidden public costs

My wife, Norma, and I recently attended the wedding of a family friend’s daughter in Seattle. The bride graduated from college last year and has been working in an entry level position earning $2,500 a month. Her new husband graduated two years ago and works in a residential center in the Seattle area earning $2,300 a month with both incomes gross earnings.

Until their marriage the young couple lived with their respective parents. Now, the newlyweds are on their own and paying for their own rent and other expenses. Unfortunately, their rent for a one bedroom apartment is $1,300 a month, which is a bargain in Seattle. Their utilities total $90 a month and transportation costs are a combined $275 a month.

The young couple’s take-home pay is $3,600 a month. Both of their employers require them to pay $100 a month each for medical insurance and both have high deductible plans. Their basic expenses for housing and transportation, not including food, entertainment and discretionary spending, total $1,665, or 46 percent of their take-home pay and 34 percent of their gross income. The newlyweds have a combined college loan debt of $17,000 and would like to have a child in the next two years. They know that day care for a newborn is $800 a month.

This young couple has long-term earning potential, but for the present, they are mired in making ends meet due to a combination of low wages, student loans and the high cost of housing and transportation. Their wages – as with millions of other middle class Americans – have not kept up with housing or medical inflation.

In recent history, medical and housing have fueled inflation enough to create economic stress on middle and lower class families. Inflation in these two sectors has far outstripped any wage gains that workers have enjoyed during the past 30 years.

In 2011, a Washington state housing study showed that a typical two bedroom apartment takes the equivalent of 2.9 minimum wage jobs to support. If a family’s rent or mortgage meets or exceeds 30 percent of its gross income, that family is considered cost burdened, which is another way of saying that they are paying too much for housing relative to their income. Being squeezed on housing requires the couple to sacrifice other essentials such as food, utilities and transportation.

Twenty-four percent of Thurston County households are low income and cost burdened, meaning they make less than 80 percent of median income and pay more than 30 percent of their income on housing. The impact of high housing combined with stagnant wages is counterproductive to a healthy economy. With housing costs consuming such a large share of their income, a young family is less likely to be able to afford the essentials.

When we combine the housing, transportation, medical insurance and child care costs, it’s no wonder that the American taxpayer is subsidizing America’s low wage economy in the form of food stamps and subsidies for housing, health care and child care.

When our country adopts a minimum wage that actually meets basic needs, the taxpayers may be able to finally realize some relief. We either pay for low wage workers through tax subsidies or we pay in the form of higher prices for goods and services. I would rather see goods and services priced so that taxpayers do not have to subsidize the private business sector.

Carefully transforming our economy away from one built on low wages to one that sustains working families is a step toward relief for financially stressed households and over burdened government budgets. Adopting a higher minimum wage is a first step, but in the meantime, we need to ensure that the working poor have access to affordable housing.

Another essential part of the housing strategy is to increase the supply of all types of housing in order to drive prices down and let the supply-and-demand economy work its magic. Those who oppose housing development are inadvertently supporting unaffordable rents and purchase prices.

This story was originally published November 1, 2015 at 4:01 PM with the headline "Low-wage economy has hidden public costs."