Why Low Wages are Far From Good News

The Austin American-Statesman ran an op-ed Saturday under the head-spinning headline ”Low Texas Wages are Mostly Good News.” [1] No joke.

American-Statesman staff writers Lori Taylor and Heather Gregory noted that Texas had the highest percentage of low-wage workers in the country in 2009 and 2010: more than a half a million workers in the state made the federal minimum wage or less. In this tough economy where so many Americans are struggling to provide their families with housing, food, education and health care, how is that good news?

Taylor and Gregory argue that Texas has a higher percentage of low-wage workers primarily because it is cheaper to live in Texas. “The biggest reason why Texas is a low-wage state,” they write, “is that we have a relatively low cost of living.” As a result, the authors argue that low-wages are sufficient for Texas workers and not a cause to worry.

Yet while Texas may have a lower cost of living than other states, the federal minimum wage is so woefully low and out-of-date that Texas workers making minimum wage are still mired in poverty. The federal minimum wage is $7.25 an hour, or roughly $15,000 a year for full-time work. That is more than $7,000 below the official poverty line for a family of four, and even farther below what a family requires to meet basic needs. The notion that $15,000 is enough to raise a family in any state in this nation is absurd.

But according to Taylor and Gregory, these low wages are acceptable to Texans, otherwise they would not be taking such poorly paid jobs. They write “Research demonstrates that workers are generally willing to accept lower wages in locations — like Texas — where the cost of living is low and there are local amenities that make it a desirable place to live.” According to the authors, it’s not that companies are offering lower wages and workers have little bargaining power to negotiate a better wage—it’s that workers willingly accepting lower pay because they don’t need higher wages.

Yet more than one in six Texans—or 17.2 percent of state residents— lived in poverty in Texas in 2009. That’s the 8th highest rate in the country. Mississippi, which tied Texas in 2010 for having the highest percentage of minimum wage workers, had the highest poverty rate in the nation in 2009. Texas also has the nation’s highest percentage of residents [2] without health insurance; in 2009, more than one in four Texans had no health coverage.

Another reason that Taylor and Gregory say that lower wages in Texas are not a cause for concern is that the workforce is younger than in other states, and young workers’ wages will increase with age. They write, “Nationally, teenagers are five times more likely to earn the minimum wage than are hourly workers over the age of 25, and Texas has a lot of teenagers.” However, Census data show that teens make up an even smaller portion of wage earners in Texas than they do nationwide: nationally 4.1 percent of working people are teens [3] while 4.05 percent of wage earners in Texas [4] are teens. . In fact, it’s not a greater percentage of working teens that are driving low wages in Texas. That makes sense, because we know that while teens are more likely to make minimum wage, more than three quarters [5] of minimum wage earners in the U.S. are adults over the age of 20. Contrary to stereotypes, the overwhelming majority of low-wage workers are adults who contribute a substantial portion of their households’ incomes.

Stepping back to look at the stalled economic recovery, the fact that low wages could be regarded as good news is stunning. As David Leonhardt detailed [6] over the weekend, the main factor preventing an economic comeback is anemic consumer demand. With the bursting of the housing bubble and the disappearance of easy credit, wages play an even bigger role in spurring spending. The downward pressure on wages caused by the economic crisis make a stronger minimum wage even more important—both because even more families are depending on it, and because it is the floor for other wages across the bottom of the labor market.

As the below graph [7] from the Bureau of Labor Statistics demonstrates, the number of Texans making at or below federal minimum wage has shot up since the recession. The number of jobs paying at or below the federal minimum wage in Texas increased by 76,000 [7] in 2010.

With the disappearance of higher paying jobs, more and more families are depending on low-wage jobs to get by. A growing proportion of workers making minimum wage or near-minimum wage will make it harder for Main Street to recover from the severe economic hit they have already taken. This is anything but good news.