Choosing between staying home and going back to work at a low-wage job, Americans are making the correct decision should they decide to sit out of the labor market until conditions improve. With almost 47 percent of wage earners making less than $30,000 a year and at least 17 percent of two-child families earning less than $30,000 a year, Americans choosing to wait for better times to rejoin the workforce are not lazy or devious, but merely acting rationally.
If, thanks to the CARES Act, some Americans are currently receiving compensation above their former salary, it’s only because of the failure of most jobs to pay a living wage. By living wage, we mean a wage rate that covers the cost of living that enables individuals and families to pay their rent, utilities, transportation, health care, child care, food, and incidental expenses. While select states have raised their minimum wage rate, individuals and families still do not make sufficient income to cover their basic costs. If forced to choose between unemployment and any wage less than that required to cover the cost of living for a two-adult, two-child family, accepting inadequate wages makes no sense and is, in fact, irrational.
Reentering the labor market is irrational if paid a low wage rate and exposed to health risks in high contact jobs like retail, health care, and food-service industries. Workers with young children may be particularly likely to stay out of the labor market, given schools are suspended, child care centers remain closed, and friends or extended family members who ordinarily might share child care must practice social distancing during the coronavirus pandemic.
The CARES Act and the subsequent $600 additional weekly payment from the federal government allows us to examine what Americans need to get by in securing the basics of housing, food, child care, transportation, and utilities. Keep in mind that more than 40 million workers hold part-time, temporary, or minimum-wage jobs in industries like food service and various gig tasks, where wage rates range from below the minimum to roughly $10 per hour. To cover expenses for a family of four with two adults (one working) and two children living in the most affordable counties in the United States, the minimum wage for the working adult would need to be at least $22.68 — three times the federal minimum wage of $7.25. No state has a living minimum wage, but Washington state has the highest minimum wage, at $13.50.
That extra $600 in weekly unemployment insurance provided for in the CARES Act is set to expire at the end of July if Congress fails to reauthorize it.
At MIT, we operate a Living Wage Calculator, which tracks the cost of living in the nation’s 3,140 counties. Using the calculator as the benchmark, we modeled the benefits package of the CARES Act. We assume one adult works a full-time minimum wage job while the other is unemployed and collecting state unemployment insurance after being laid off from a full-time minimum-wage job. For each county, we combined the relevant state or local minimum-wage levels, state minimum unemployment insurance payment levels, and the Federal Employment Pandemic Compensation $600 weekly payment. We then asked, given the current package of benefits plus minimum-wage employment, where in the country a family of two adults and two children can cover their costs
▪ Pre-pandemic, two minimum-wage jobs did not cover living expenses for most working families. Amid the pandemic, a minimum-wage job and state unemployment benefits would fall woefully short of meeting a family of four’s needs in every single US county.
▪ In most states, the additional $600 weekly support offered under the CARES Act was sufficient to keep working families afloat during and after the pandemic. In all but about 270 counties, with the additional $600 a week, our hypothetical family of four had enough income to meet basic living expenses.
▪ To gauge the level of extra income required for such families to cover their costs, we explored, in sequence, the consequence of reducing the extra weekly benefit to $400 or $200. The differences were stark: At a $400 additional weekly benefit, the family could cover their necessary costs in only 11 percent of US counties (as compared with over 90 percent of counties at the $600 additional weekly benefit). And if the extra federal benefit were only $200 per week, there are just two rural counties in Washington state (Garfield and Lincoln) where that family of four could cover their basic costs.
What are the implications of our findings? For an untold number of laid-off citizens, those payments are essential for covering their family’s necessary living costs. And if Congress and the president want to make Americans feel more secure in these uncertain times, raise the federal minimum wage. The quickest way to make all Americans sleep easier at night — and be willing to go back to work and help the economy recover — is by providing a living wage to get by in the era of COVID-19.
Amy K. Glasmeier is a professor of economic geography and regional planning in the MIT Department of Urban Studies and Planning. Thomas C. Goff is a senior associate at Mass Economics, and Zack Avre is a graduate student at the MIT Department of Urban Studies and Planning.