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Can you save on minimum wage?

By Judy Martel · Bankrate.com
Wednesday, July 24, 2013
Posted: 6 am ET

In a likely well-intentioned effort to teach employees the value of maintaining a budget and putting aside savings every month, the world's largest restaurant chain managed to ignite a firestorm of protest.

Would an increase in the minimum wage make the Big Mac pricier?

Would an increase in the minimum wage make the Big Mac pricier?

In a partnership with Visa, McDonald's created a website and posted a sample budget to illustrate how to live and save with a minimum-wage job. The federal minimum wage is set at $7.25 an hour, though 19 states have a higher wage, four have a lower minimum wage and five have no minimum-wage law at all.

One full-time job won't cut it

The sample budget assumes a full-time McDonald's job will net the employee $1,105 per month and adds an additional $955 per month for a second job, for a total monthly net income of $2,060. It allocates $600 for rent or a mortgage, $150 for a car payment and $20 for health insurance. Protestors consider all three estimates to be too low.

Insurance for car and home is budgeted at $100 a month; electricity at $90; cable/phone at $100 and savings at $100. Another line item, "other," is listed at $100 a month. Expenses in the sample budget total $1,260, leaving $800 for monthly spending. Since there are no line items for clothing, gas and food, it is assumed these and other living expenses would be deducted from the $800.

While keeping a daily or monthly budget is a great way to avoid excess debt and save for the future, it's tough to accomplish on minimum wage. Low earners "can't afford the luxury of saving," says Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida.

A changing labor market

The current minimum-wage debate highlights the conundrum about productivity in the workplace, says Snaith. Typically, education and experience ultimately determine an employee's value, but in the wake of the recession, the U.S. is still stuck in a weak labor market.

The sluggish economy changes the rules somewhat, Snaith points out. "A lot of people have had to move down the ladder in the labor market to find work," he says. That leads to increased competition for lower-wage jobs, preventing younger people from obtaining the first job to gain experience that will propel them forward in the workforce.

From the corporate standpoint, since McDonald's is known for its inexpensive food, raising the minimum wage would likely translate into higher prices. "If costs are being pushed up by wage increases, the company's profit is reduced or eliminated," Snaith says. "It's likely they would have to pass on those costs to consumers."

What do you think about the minimum-wage debate? Could you avoid debt and save on a minimum-wage salary?

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