Earlier this month we learned that in 21 out of the 26 OECD member countries that have a minimum wage, working 40 hours per week at the pay floor would not be sufficient to keep one's family out of poverty. That rather stunning revelation comes as Democrats in the US push for a $12 minimum wage by 2020 and as pressure grows on companies like McDonald’s to raise wages for its lowest-paid employees.
Of course rising minimum wages can also have the rather counterintuitive side effect of harming those they’re meant to help because after all, when the cost of labor goes up, employers may simply fire people or, as we saw yesterday when McDonald’s pledged to reduce the number of company-owned restaurants by 10% over the next several years, resort to other measures aimed at getting around pay floor hikes.
So while one can debate pros and cons of addressing abysmal wage growth by legislating a non-market-driven solution, what is not up for debate is this: it’s getting harder and harder to subsist above the poverty line for low-income workers.
In fact, as the following map shows, in no state can a minimum wage worker afford a one bedroom apartment.
Here’s some color from a study by the National Low Income Housing Coalition:
Rents for apartments have risen nationally for 23 straight quarters. As of the third quarter of 2014, rents were 15.2% higher than at the tail end of the Recession in 2009. Rising rents are an outcome of increased demand for rental housing. One recent study of 11 major cities found double-digit growth in the number of renters in nine of the 11 cities between 2006 and 2013. In the fourth quarter of 2014, the homeownership rate dropped to its lowest rate in twenty years and the rental vacancy rate fell to 7% as more households sought rental units. The downward pressure on vacancy rates directly impacts the rental housing market, making landlords less willing to offer rent concessions and more likely to increase rents. The tightening rental market has the most significant impact on low income renters.
So thank you Wall Street (and a hat tip to Alan Greenspan as well) for creating an entirely unsustainable housing bubble which finally collapsed on itself, turning a nation of homeowners into a nation of renters many of whom will now have to pony up everything they make each month to someone who may have gotten a landlord loan from Wall Street to buy up rental properties from home flippers who also got loans from Wall Street where some very clever investment bankers are busy securitizing these landlord and home flipper loans in order to sell billions in new ABS on the way to recreating the very same bubble only to have it burst all over again.