Coronavirus and Minimum Wage 

By Lindsay Frankel
Inside Subprime: July 21, 2020

Millions of Americans are now relying on unemployment insurance benefits, and recipients are set to receive an additional $600 weekly through July 31, thanks to federal relief. But now, economists at the University of Chicago estimate that 68 percent of unemployment recipients are getting more income now than they were while they were working. 

Some experts worry that this could complicate reopening the economy, as workers may not be motivated to return to work. Many critics have said that federal assistance money exceeds what is necessary. Yet for many Americans, especially single parents, the extra unemployment benefits aren’t even adding up to a living wage. Rather than indicating that relief efforts went too far, the situation instead highlights a much larger national problem; minimum wage is far too low. 

While the official unemployment rate declined slightly in May, the employment-population ratio, which provides a more inclusive picture of joblessness because it takes into account anyone who is not currently employed, sits at just 52.8 percent. That means nearly half the U.S. population is without a job. Experts note that a return to peak-level employment will require the creation of 30 million jobs. 

Coronavirus-related business closures have had a particularly devastating impact on the earnings of low-wage workers. Low-wage jobs such as retail and food service positions were disproportionately affected by efforts to curb the spread of the virus; about 52 percent of lower-income households experienced a job loss in April due to COVID-19, while only 32 percent of upper-income households did. And lower-income earners were less prepared for a financial setback; only 23 percent reported having an emergency fund that would cover three months of expenses, compared to 75 percent of upper-income families. As a result, 53 percent of lower-income families expressed that they would not be able to pay all their bills in April. Only 11 percent of upper-income households said the same. 

In response to overwhelming jobless claims and widespread financial concern, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27th. In addition to providing up to $1,200 for individuals earning less than $99,000 annually, the legislation provided access to unemployment benefits for people who wouldn’t otherwise be eligible, such as contract workers and furloughed employees. It also provided for an extra $600 in weekly benefits on top of regular state unemployment insurance, and extended the maximum duration by 13 weeks. 

The living wage is higher than the minimum wage for all family sizes in all areas of the country. That means the 1.6 million workers paid minimum wage or less, and many earning more than that, aren’t making enough income to cover things like food and housing. The average living wage for the U.S. is $16.54 per hour for a family of four (two working adults with two children). That’s more than double the $7.25 minimum wage. And single parents need to earn even more to make ends meet. 

The gap between minimum wage and living wage is evident in the personal financial situation of the average American. Even before the coronavirus crisis hit the U.S., many Americans were struggling financially. Studies have shown that anywhere from 59 percent to 78 percent of Americans are living paycheck to paycheck, unable to put money aside for emergencies or retirement. And collective household debt reached $14.3 trillion in the first quarter of 2020. Already, one in nine workers were living in poverty, even with a full-time job. It’s still too soon to know the full impact of the pandemic on these figures. 

An Economic Policy Institute analysis of a proposal to increase the minimum wage to $15 by 2025 found that such a measure would lift wages for 33.5 million workers, including 6.2 million people living in poverty. The average worker impacted by the legislation would see their earnings increase $2,800 annually. 

Several states have also chosen to increase the amount of grant money given to needy families.

For more information on the middle income consumer, subprime loans and payday loans, see our city and state financial guides including states and cities like California, Texas, Illinois and more.