follow-upIn recent years, minimum wages have slowly increased, with Denver reaching $17.29 an hour, and the suburbs surrounding the city being lower, based on the state of Colorado’s minimum of $13.65 an hour.
While workers have welcomed the increases, apartment rental prices have outpaced those gains for workers, with almost 60% of a minimum wage worker’s paycheck expected to go to a landlord.
That’s the highest proportion in a decade, and a calculation that doesn’t include other expenses, such as utilities.
“We’ve seen over the years that the minimum wage actually erodes over time, and periodically has to be readjusted,” said economist Markus Schneider.
Schneider, chair of the Economics Department at the University of Denver, said these cost-of-living adjustments to the minimum wage do help workers — both Denver and the state make adjustments to their minimum wages — but despite increases, the adjustments don’t completely stave off the consequences of rising inflation and skyrocketing housing costs on low-income workers.
Even after a decade, workers are still forced to dedicate too much of their salaries to housing, and it’s only worsened.
A “living wage” is what is needed to keep up with the costs of living, the “very fine line between the financial independence of the working poor and the need to seek out public assistance or suffer consistent and severe housing and food insecurity,” according to MIT’s Living Wage calculator. MIT describes it “as a minimum subsistence wage.”
For the metro area, that living wage is $19.62, well above the state minimum wage and even Denver’s. The cost-of-living adjustment that both minimum wage rates are tied to is called the Consumer Price Index — a “positive step in the right direction,” according to Schneider.
“At the same time, the minimum wage is below a living wage,” Schneider said. “It’s, at best, going to keep it in proportion.”
That means the disparities won’t grow as badly as they could, but will still not keep up with a living wage.
In 2010, the state minimum wage was $7.24 an hour. Rent for a studio in the metro area was $638, according to U.S. Housing and Urban Development fair market rent data. That came out to half of a worker’s wages, which the National Low Income Housing Coalition — a nonprofit that aims to end the affordable housing crisis through policy and data research — deems unaffordable, as is anything upwards of 30% of wages spent on rent and utilities. The coalition considers paying upwards of 30% as placing workers at risk for homelessness.
By 2023, the situation had only grown worse for minimum-wage workers. While their wages rose to $13.65 an hour, metro-area studio apartment rents hit $1,390, meaning workers have to pay almost 60% of their wages to keep a roof over their head.
Part of the gap between the index increases and rent is inequality, Schneider said.
CPI is calculated by looking at how much change there is in the average price of household items, food, energy, rent, electronics and more, weighted by how big that category is in the household budget.
This calculation is for the entire metro area, though. With different parts having different wages and costs of rent, the CPI can become skewed for some.
“The CPI for Colorado is going to be very responsive to what’s happening in Denver just because that’s the big population center,” Schneider said. “We know that Denver has actually had a hotter housing market, and housing is a big component of what that living wage means.”
However, higher minimum wages do not cause rents to increase, in his view.
“There’s really not much evidence for it — in the ranges that we’re talking about raising minimum wages,” he said. “If we raised it by a factor of two, or even of five, then yes, that’s probably a big thing. But we’re talking about just getting closer to a living wage — I’m very skeptical that it’s a big effect.”
“Certainly not a big impact on the price aspect, because even when people get up to that living wage, it’s really only going to impact relatively cheap housing, and relatively bottom end of the rent market — you’ll see some of those rents go up a little bit. But the average rent in Denver isn’t going to budge much.”
This leads to CPI not adjusting enough for the lowest wage earners in the metro area, and not keeping up with their rising rents. As Schneider said, the adjustments are better than nothing, but still do not set minimum-wage workers to earn a living wage — a goal that, since more than a decade ago, has only become further away.
“When people make more money, particularly at the bottom end, when we’re talking about pushing poverty line or at least well below the living wage, they’re likely to move to a nicer neighborhood or closer to a nicer school, which means the rents in the places that they were living won’t be affected that much,” Schneider said.
According to MIT, a “livable wage” for Colorado is about $19.16 an hour, and the Denver-Aurora-Lakewood metro area “livable wage” is even higher at $19.62 per hour. Current minimum wage in the state is far less at $13.65 an hour, with Denver’s being $17.29 per hour. Both the state and Denver may be increasing minimum wage year over year to follow inflation or cost of living, but they may never actually reach a “livable wage” when they are already so far behind.
Colorado state’s minimum wage, and Denver’s own minimum wage, rise incrementally based on the Consumer Price Index (CPI). This is functionally a measurement of the cost of living, measured by the U.S Bureau of Labor Statistics. It includes food, housing costs, transport, medical care and recreation among others, all broken down to smaller parts like gas, and electric bills. MIT’s “living wage” considers many of the same categories, but is stricter.
“The living wage is the minimum income standard that, if met, draws a very fine line between the financial independence of the working poor and the need to seek out public assistance or suffer consistent and severe housing and food insecurity,” according to MIT’s Living Wage calculator. “In light of this fact, the living wage is perhaps better defined as a minimum subsistence wage for persons living in the United States.”
Their calculator uses Fair Market Rents (FMRs) — which “represents the cost to rent a moderately-priced dwelling unit in the local housing market” — along with local utility prices, to determine housing costs.
According to The National Low Income Housing Coalition (NLIHC), a nonprofit that aims to end the affordable housing crisis through policy and data research, anything upwards of “the generally accepted standard of spending no more than 30% of gross income on rent and utilities,” is considered unaffordable housing, though. This brings needed wages, according to NLIHC, even higher than MIT’s livable wage that already lies on the razor’s edge of financial independence and public assistance.
Other major costs in MIT’s calculation are food and transportation, which take up another $9,160 per year — $4,153 and $5,007 respectively. Housing, food and transport together take up 75% of their salary — which leaves some room for the $4,814 cost for “clothing, personal care items, and housekeeping supplies,” and $2,768 for medical care, but none for the $7,929 in annual taxes.
MIT specifies that the calculation “accounts only for the basic needs of a family. It does not account for what many consider the basic necessities enjoyed by many Americans,” such as dining out and other forms of entertainment, but it also “... does not provide a financial means for planning for the future through savings and investment or for the purchase of capital assets.”
And this is all for single adults without children. A single adult with one child brings the livable wage from $20.61 an hour to $39.96.
NLIHC’s “Out of Reach” reports use “housing wage” as the wage a full-time worker must make to afford FMRs without spending over 30% on rent. For a studio apartment in Denver with an FMR in 2022 of $1,236 per month, the “housing wage” would be $23.77 an hour before taxes — 1.5 times what a minimum-wage worker currently makes. This is even higher than MIT’s $20.61 an hour “livable wage” for a studio apartment and even includes utilities, as MIT’s wage is only enough to be on the brink of financial ruin.
Based on NLIHC's metric, no housing in Denver is actually “affordable” to a minimum-wage worker. It may never reach this point either.
Denver’s 2020 minimum-wage ordinance began with increasing minimum wage to $12.85 per hour in January 2020, then $14.77 in January 2021, then $15.87 in January 2022, and $17.29 this year.
From now onward, it’s tied to CPI. According to the ordinance, “the Denver minimum wage rate shall increase by an amount corresponding to the prior year's increase, if any, in the Consumer Price Index …” But this wage is already below the “living wage” determined by MIT, so staying on par with the CPI will only ever keep the minimum wage stable, not increase its value.