The Hidden Danger of a Higher Minimum Wage

Minimum wage – it’s a hot issue right now and there are passionate people making persuasive arguments on both sides of the debate.  It’s a complicated issue for employees, employers and society as a whole. There are no easy answers – and sometimes, I wonder if there are really any answers at all.

minimum wage

Although there are several good reasons to raise the minimum wage, there is one really big one not to – especially for people with high state minimum wages like Washington!

A higher state minimum wage means less people qualify for essential benefits.

The income limits for many benefit programs, including Medicaid, LIHEAP and the National School Lunch Program, are based on the Federal Poverty Level. Since the state minimum income is higher than the national average, this makes it harder for low income people to qualify for these essential services.

As of 2017, the federal poverty guideline for an individual is $12,060. The federal minimum wage is $7.25 per hour, so that’s about 32 hours per week.

In Washington State, where the minimum wage is $11 per hour, an employee can work just 21 hours per week and exceed the FPL.

Families that previously received Medicaid, Food Stamps and other programs are watching those benefits disappear now that the minimum wage has increased.

They are trading tens of thousands of dollars in benefits for a few extra dollars in their pockets.

LIHEAP provides up to $1,000 per year toward your power bill. You’ll lose that once you earn 125% of the federal poverty guideliens.

Head Start is a free early education services for low income families. The government pays about $7,600 per student per year in this program. You’ll lose it at 130%.

Most low income housing units we’ve found cap their income limits at 130% also. That means that once you reach this point, you may need to move out of your affordable housing unit and find more expensive market-rate housing.

You’ll start to lose adult Medicaid coverage once you earn 133% of the FPL. On average, a family of four receives $15,974 in benefits per year through this program. The average amount spent for each person enrolled in Washington state medical is $6,018 per adult. The value soars to $11,313 for seniors and $13,037 for disabled adults.

Free student lunches provide more than $500 in free food per student per year. Once you reach 130%, you’ll have to pay 40 cents per meal… but once you reach 185%, you’ll pay full price.

You’ll lose Basic Food Assistance when you reach 200% or less. For a family of four, food stamps can provide up to $632 per month or $7,584 per year. However, your food stamps amount will decrease proportionate to your income so the more you earn, the less you’ll receive.

At 200%, you’ll also no longer be eligible for the state’s Low Income Weatherization Programwhich can provide thousands of dollars in free home improvements to income-eligible homeowners and renters. These improvements can help you save money on your monthly power bill.

When you reach 210%, you’ll no longer be eligible for free coverage from Apple Health for Kids. You’ll still be able to pay small amounts for subsidized care until you reach 320% of the federal poverty guidelines. The average value of this coverage is about $1,969 per child per year.

If you’re going to college, you may be alarmed to see your Pell Grant disappear when you reach 250%. The Pell Grant provides up to $5,775 per year toward your college education and, since it’s a grant, it never has to be paid back.

That’s a lot to lose.

So what do you gain with a minimum wage increase?

The $3.75 difference between Washington State’s minimum wage and the federal minimum wage is just $150 per week or $7,800 per year for a full-time, 40-hour-per-week minimum wage employee.

Since that employee now earns $22,880 per year, they’re at 190% of the federal poverty guideline for an individual.

If that employee is a single parent of one child, they’re at 140% of the guideline and lose LIHEAP, Head Start, low income housing, adult Medicaid coverage and free student lunches. That’s at least $7,518 per year in benefits. It’s over $15,000 if the child was in Head Start! These figures do NOT include any rent savings from living in low income housing, either!

A higher minimum wage can leave you with less than you started with.

My friend Tina owns a child care center that serves low income families in Washington State. She wrote:

“Individuals who are earning the new minimum wage in Washington State… are actually earning less overall than they would have had they earned a lower wage. Families who have lived in low-income apartments are now being kicked out of those low income apartments because their wages now exceed (the FPL guidelines). There is no other housing which they can afford because they are required to have so much money up front – and paying more for rent doesn’t work when you now have to also pay all your own food, your own medical, etc.

“The bottom line is that basically, by raising wages, these people are now unable to receive any of the help which made it possible for them to live.”

This issue is very apparent to Tina, who works daily with families facing higher co-pays for DSHS-subsidized child care. Tina explains, “If you work 27 hours per week, your copay for childcare is between $15 and $65. If you work full-time, it’s between $280 and $420.”

As a result, families have to pay more for this essential service and some are finding that they just can’t afford it.

“I have staff who have begged me not to give them more than, say, 27 hours a week because if they go over they’ll lose their medical and they can’t afford to do that. As an employer, it’s frustrating because it means the people I would like to have work full-time because of their strengths in this business are the ones that I cannot put to work full-time. They’re limiting their hours to keep their benefits.

“Realistically, if you work 27 hours per week you have medical, food stamps, and a place to live. If your employer lets you work 40 hours a week, now you’re homeless, short on food and have to pay for medical!”

We need a better solution to increase quality of life for low income earners.

Obviously, raising the minimum wage can backfire on those who need it most… but staying low income to protect benefits isn’t good for the individual, family or society as a whole. Everyone needs to have the freedom and ability to improve their financial situation.

There has to be a better way.

Low income individuals and families need to feel empowered to improve their lives through better employment without fear of being worse off than before. They need to be able to confidently seek better employment opportunities and higher incomes without worrying about the financial backlash of suddenly losing benefits.

We need a better solution to compassionately empower low income individuals and families to improve their situation.

But raising the minimum wage doesn’t help the situation – it only makes it worse.

So what’s the solution? How do we solve this?

Let’s discuss in the comments below!

 

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