How many hours a week should minimum-wage workers have in order to lift their family out poverty?

In this article, I would like to elaborate the picture below (figure 1) and its relevancy in Indonesia’s case. Unfortunately, there is no Indonesia in this picture so I have to calculate it by my own.

Figure 1: Hours a week a minimum-wage worker with two children would need to work to earn 50 percent of their country’s median household income, a common gauge for the poverty line

WSJ_Minimum wage and work hours

Link: http://goo.gl/Nmz7M8

Note: I slightly modified this picture by adding Indonesia.

As explained in this article and also the original OECD report itself (click the above link), American and British minimum-wage workers must work at least 50 and 16 hours per week, respectively, to lift their family out of poverty.

As a full time student and a part-time waiter in UK, I know that minimum wage in UK (non-London) is 6.5 GBP per hour. Thus, if a single-earner family in UK earns less than 420 GBP per month (6.5 GBP x 16 hours x 4 weeks), they are cathegorised as a poor family. It makes sense because, even with 420 GBP per month you cannot rent a proper house in UK (i.e. two or three rooms) for your kids costing about at least 650 GBP. This is one of the reasons why UK government gives a massive social house subsidy and any other subsidies for the poor.

How about the Indonesia’s case?

Based on my calculation, Indonesian minimum-wage workers have to work only less than 30 hours per week or 6 hours per day to rise their family above the vulnerable people treshold, similar to Germany and better than Turkey, Canada, US or South Korea. There are several key assumptions in this calculation:

First, I assume family as a father, a mother, two children and father is the only worker (i.e. income earner). Hence, I assume this family (i.e. Father’s income) earns roughly at minimum-wage which is 2 millions IDR per month. OECD also assumes that there is only single earner in the family.

Second, as I mentioned earlier that the minimum wage is assumed 2 millions IDR per month. In Indonesia, different provinces have different minimum wage level. For example, Jakarta’s , the capital city, minimum wage is about 2.7 millions-the highest rate in Indonesia but many other provinces have only less than 2 million (link: http://goo.gl/mXfA8F ). Therefore, to simplify, lets assume the average minimum wage is 2 millions.

Third, the poverty line is 370,000 IDR/person/month (I.e. vulnerable people, see figure 2). It means that the family’s income is assumed less than 1.5 million/family/month (i.e. 370k x 4 persons). In addition, this assumption is higher than Indonesia’s national poverty line which is pretty low 250k IDR/person/month (Figure 2).

Figure 2: Four groups of people based on their Income in Indonesia, 2008-2012

TNP2K_growth income in Indonesia 2008-2012

Link: http://goo.gl/DFM6T1

Note: The picture shows: 1) Indonesia’s National Poverty Line is 250,000/person/month (12 percent of population); 2) Vulnerable people earn less than 370k/person/month (40 percent of population); 3) Middle-income people earn between 370k-750k/person/month (40 percent of population); 4) High-income people earn more than 750k/person/month (20 percent of population).

So, I think Indonesia’s minimum wage is not that bad, is it?

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