Not to alarm you, but here’s a headline that’s been popping up a bunch:
Anywhere? Are you sure? Because, not gonna lie, my backup plan for when I get sick of the world is to go take a minimum wage job and live in the middle of nowhere. (I’ll have to take nowhere literally now I guess.)
Before I totally panicked, though, I read the article (and the study, which I generally recommend at least skimming as articles aren’t infallible)…ok, here’s the actual deal: the test being used here to determine “afford” is whether a minimum wage worker working full time (40 hours a week, 52 weeks a year) can rent a “fair market rent two-bedroom home” by spending no more than 30% of their income. In looking at the full report, I learned that “fair market rent” is defined as the price of the 40th percentile two-bedroom rental home in the area. *insert screeching noise here*
By definition, 40 percent of two-bedroom rental homes in an area cost less than this “fair market rent.” (See here for a review on how percentiles work.) On the up side, I feel better than my minimum-wage self might be able to afford a number of those 40 percent of rentals below the fair market rent. (Similarly, my grad student self certainly couldn’t afford such a fair market rent home, but there were a number of options that were financially accessible.) On the down side, I’m incredibly annoyed at the study’s misleading use of both math and words here, particularly since it took me more than trivial effort to read through and find the 40th percentile thing. I’m also annoyed at the article for not being at least a little critical of the garbage affordability metric. (Not to mention that the average two-bedroom home is described in the article as “modest” and “decent” interchangeably and I’m not sure which one bothers me more.)
Is it a cause for concern that a minimum wage worker can’t afford this 40th percentile rental home? I honestly can’t tell without further information. Some other things I would like to know: How many minimum-wage workers are the only worker in a larger household? (In other words, how badly do these workers need two bedrooms in order to live without going insane? How many minimum-wage incomes represent total household income?) Are one-bedroom homes available at lower prices in the area? (This may not be the case in some places.) How spread out is the lower part of the price distribution for these homes? (In other words, how much cheaper are the 40 percent of homes that are below fair market rent? How many of those are affordable?) Are the lower-end homes total dens of iniquity or are they actually livable? Could the minimum-wage workers buy something rather than rent? (Yeah, I heard it too, but I’m trying to be analytically exhaustive.)
After stewing over this for the better part of a day, I realized something particularly interesting- unless I’m doing something very wrong, it takes pretty specific conditions to result in a scenario where a minimum-wage worker can afford this fair market rent home, which implies that the aforementioned lack of affordability has to exist almost by construction. Why is this? The amount of housing in an area is fixed to some degree (this is a topic for another day) and higher incomes tend to bid up prices when supply doesn’t adjust to compensate. If there’s a general correspondence between quality and price, then we’re going to see, roughly speaking, the highest-income person in the most expensive home, the average-income person in the average home, and so on. As long as minimum-wage workers are a small fraction of workers (this report is at a federal level but suggests a small percentage), it’s unlikely that aminimum-wage worker won’t get outbid for that 40th percentile home. (One caveat: this conclusion could change if higher-income households overwhelmingly buy rather than rent.)
At the risk of sounding like a jerk, I’m going to say I don’t see the lack of affordability as described in the study as a problem in itself as long as the lower-end housing isn’t a total slum situation. I’m not a total monster, though, so there are statistics out there that could get me on the outrage train- for example, housing affordability metrics typically compare median (50th percentile) house price to median income, and I’d definitely be worried if such a ratio got too high. This doesn’t really speak to the welfare of low-income workers, however, so I would also likely be concerned if, say, minimum-wage workers represent 10 percent of the households in the rental market in an area but can only afford 5 percent of the homes for rent.
To slightly paraphrase economist Ronald Coase, “ If you torture the data long enough, it will confess.” In other words, there’s often enough wiggle room that you can make numbers say what you want to say, especially if you choose definitions and thresholds strategically, drop inconvenient outliers, and all sorts of other fun stuff. So what can you, as a consumer of quantitative information, do? Be suspicious. Look behind the headline to see what numbers are being calculated. Ask yourself “self, does this information actually answer the questions that it claims it does?”
As I’m writing this (I swear this is not made up), my TV is showing one of those auto insurance commercials that claim “people who switch save an average of $412” or whatever, and I literally yelled “of course they did, what moron would switch if he wasn’t going to save a significant amount of money?” so at least you know I practice what I preach.
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