The US Needs to Redefine Poverty

This essay first appeared in Al Jazeera America on November 2, 2015. I've lightly edited it for the web; the argument is unchanged.

The recent campaigns to raise the minimum wage across the United States have attracted a lot of coverage. New York has moved toward a $15-an-hour floor, joining Seattle, San Francisco, and Los Angeles, and there is real momentum behind the idea that full-time work should guarantee a decent standard of living. Far less attention has gone to the capricious relationship between minimum-wage policy and inflation. The U.S. is unusual among developed nations in holding its poverty line inadequately low and failing to keep it in step with the rising cost of living.

Wages have to be read in real dollars

The federal minimum wage was meant, from the start, to provide the minimal salary a working American needs to earn a meaningful living. It has risen steadily since it was enacted in 1938 at 25 cents an hour — but the number on the page is not the number that matters. What matters is purchasing power. Factor in the Consumer Price Index and a jump like the one from $5.15 in 2006 to $7.25 in 2009 turns out to have been only minimally significant in the relief it actually delivered.

That is the pattern. The real value of the minimum wage fluctuates, peaking and then sliding. Each increase is reactive: it offers low-skill workers some relief, then erodes over the following years until federal action is required all over again. With each passing year, wages stay flat while the dollar quietly buys less.

When wages fall short, the poverty line takes over

If working people cannot sustain themselves on wages alone, they fall back on government entitlements and safety-net programs to fill the gap. Those programs are typically means-tested — eligibility is reserved for people who lack sufficient income — and "sufficient" is usually defined against a poverty threshold, the Federal Poverty Level (FPL). In the U.S., that threshold was originally computed as the cost of a minimally adequate meal for a family of four, multiplied by three.

Why does that matter? Because there is a gap between the FPL and the wage floor, and it is smaller than it should be. Earning 100 percent of the federal poverty threshold would put a single individual at $11,770 a year, while a full-time worker putting in all 52 weeks earns about $15,080. In other words, a full year of minimum-wage work leaves you less than $4,000 above what the government itself calls poverty. For context, the average monthly rent in Minneapolis — hardly an expensive city — was about $1,259.

A line drawn for a different era

The metric behind the poverty threshold is a peculiar one. There was no federal standard for measuring poverty in the U.S. before the early 1960s. The Department of Agriculture did much of the research on food scarcity and ran food-assistance programs, and its food-based standard became the basis for the poverty threshold during the Great Society. But the cost of food is no longer the largest share of a family's budget, so building the whole measure on it makes little sense today.

The U.S. approach also stands alone in the developed world. Other members of the Organisation for Economic Co-operation and Development (OECD) generally measure poverty as half of national median income. By that standard the U.S. has the third-highest poverty rate in the OECD, outperforming only Israel and Mexico.

What the numbers would look like done right

In 2014, U.S. median income was $53,657, which would put the FPL for an individual at $27,897 under OECD guidelines. The actual U.S. measure is only 44 percent of that, and the current $7.25 minimum wage sits at about 56 percent of the OECD poverty level. Raising the minimum wage to $13 an hour would be enough to push the U.S. past that threshold; $15 an hour would reach about 116 percent of it. That would meaningfully lift people out of poverty as the OECD defines it — though it would still fall far short of median income.

Getting the definition right

The minimum wage is supposed to give every working person a means of building a meaningful life in exchange for full-time work, and to safeguard Americans against poverty. From a policy standpoint, if the government wants to keep the budgets for entitlements and safety nets from ballooning under demand, it needs to preserve real economic incentives to work. When $7.25 an hour is only a few dollars from the poverty line, that encouragement is thin. Real relief starts with getting serious about what a minimal standard of living actually costs — instead of holding to a measure that keeps so many people living on the edge of poverty.