Minimum Wage and Poverty Threshold

Kathleen Esposito
unhappy couple looking at bills

In the United States, the federal minimum wage is determined by the Fair Labor Standards Act (FLSA). For many people, surviving on this wage does not seem like enough to achieve a minimum standard of living.

Minimum Wage

On May 25, 2007, President Bush signed a bill that increased the federal minimum wage to $7.25 per hour effective July 24, 2009. As of the end of 2012, there have been no further increases. However, states do have the discretion to set a minimum wage that is higher than the federal minimum wage. You can learn more about minimum wage laws in your state by visiting the US Department of Labor website.

Interestingly, there are a number of exemptions to the federal minimum wage requirements. For example:

  • Workers under 20 years of age may be paid as little as $4.25 per hour during the first 90 consecutive calendar days of employment.
  • Workers with disabilities may be paid less than the federal minimum wage under special certificates issued by the Department of Labor.
  • Employers who allow workers to receive tips can claim a "tip credit" against the federal minimum wage and only pay $2.13 per hour if the rest is made up by tips.

Poverty Threshold

The poverty threshold, also known as the poverty line or the federal poverty level, is the point at which one is thought to be able to achieve a minimum standard of living. Although the poverty threshold does not take into account regional differences in the cost of living, the calculations do make allowances for age and family size. Currently, $11,170 is the poverty threshold for one adult under the age of 65. Two adults under the age of 65 living together must earn $15,130 or less to fall under the poverty line. Two adults under the age of 65 living with one minor child must earn $19,090 or less to fall under the poverty line.

Additional information about the poverty threshold can be found on the Department of Health and Human Services website.

While the poverty threshold does provide an insight into the plight of the working poor, the guidelines have one aspect that many consider to be a significant flaw. Originally, the standard used to calculate the poverty threshold was based on the cost of a nutritionally adequate diet. Today, however, housing and healthcare have replaced food as the largest expenses in a family budget.

Minimum Wage Connections

Researchers who study issues related to minimum wage and the poverty threshold have discovered a definite link between poor employment opportunities and economic struggles.

A full-time worker (working 2,080 hours a year) earning $7.25 an hour earns $15,080 per year. Although this is slightly above the poverty line for one person, it is clearly a wage that is inadequate for someone who must support a family. In addition, it's important to realize that retail stores, fast food establishments, and other businesses that commonly pay the minimum wage often have erratic scheduling policies. Employees may be simply unable to work 40 hours per week on a regular basis.

While food benefits, free medical clinics, housing assistance programs, and other forms of aid can help low income people make ends meet, workers at minimum wage jobs are often unable to build the savings necessary to protect them from financial disaster. A broken refrigerator, an unexpected car repair bill, or a week of work missed due to a child's illness can have serious consequences.

Living Wage

Many areas, such as Boston, have put "living wage" ordinances into place. As of June 2013, Boston's living wage is $13.49 per hour. The living wage is meant to keep the average American family of four at an income level higher than the poverty line. However, in the majority of cases, it is up to the employer to determine how much to pay the workers. The only recourse an employee really has is to quit his or her job for a higher paying one. Wages rise as competition for workers does, so people seem to be hit the hardest during periods of high unemployment when a minimum wage job is better than no job at all.

Minimum Wage and Poverty Threshold