Talk to economists and you'll find a lot of debate about the minimum wage. Supporters say that by ensuring a certain level of income for American workers, the minimum wage increases the standard of living, stimulates consumption and motivates workers. Critics say that a minimum wage — or, more aptly, the higher labor costs associated with it — hurts America's competitiveness in the global marketplace. The one thing that nobody seems to debate is that trying to live on minimum wage in America sucks. In fact, the only thing worse than the minimum wage is no wage at all.

So what does all of this financial talk have to do with cars? Recently, the editors at MSN Autos debated whether someone could afford an automobile on a minimum-wage income. Unfortunately, the discussion raised still more questions. So we decided to find a definitive answer.

Can someone afford an automobile on minimum wage?

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Understanding the Minimum Wage

We discovered good news and bad news. The good news is that people at the lowest income levels are driving better cars than they used to, says James Sullivan, a University of Notre Dame labor economist specializing in consumption habits of the poor. The bad news is that trying to afford and maintain any car at that income level is a soul-sucking exercise in thrift.

Why is that? Let's start by attempting to wrap our heads around the idea of a minimum wage, which is more complicated than you might think. That's because, as it turns out, there is no single minimum wage. There is a federal minimum wage, which was last updated in 2009 to $7.25 per hour. But there is also a variety of state laws regarding minimum wage. Some states, such as Louisiana and Tennessee, have no laws defining the minimum wage, which essentially means the federal minimum wage applies. Some states, such as Minnesota and Georgia, have minimum wages that are lower than that of the federal government, which still means that most employees get the federal minimum wage. Many states have a minimum wage that is pegged to the federal minimum wage. And then there are states such as Connecticut and California, which have minimum wages higher than what is federally required. The highest minimum wage is in Washington state, where residents are guaranteed $9.04 per hour since January of 2012.

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Crunching the Numbers

So let's start with the best-case scenario and say that you live in Washington state — MSN Autos' home base — and you earn $9.04 per hour. And let's say that you have a full-time job working 40 hours a week for 52 weeks a year, which would make you a statistical rarity. (Let's ignore, for the moment, things such as health care that could take an instant bite out of that paycheck; that's a political can of worms for another article.) Such employment would give you a base salary of $18,803 per year.

Obviously, that doesn't mean you can spend the full amount on a vehicle. To get some real-world numbers, we spoke with John Abowd, director of the Labor Dynamics Institute at the Cornell University Department of Economics, who pointed to the federal government's Bureau of Labor Statistics' Consumer Expenditure Survey. This insanely detailed document examines how much people spend in a year on all kinds of goods and services and breaks down the data by income bracket. A yearly income of $18,803 puts you in the bottom third of income distribution, and for a single person that's only $7,913 above the poverty level of $10,890, a figure from the 2011 US Department of Health and Human Services poverty guidelines.


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Economists warn that the statistics in the survey can get a little wacky, since they are household averages that can be skewed by all sorts of behaviors. Even so, they are good for drawing broad conclusions. According to the survey, transportation is the third-biggest yearly expense for poor people, behind housing and food, costing the bottom 20 percent in America 13.7 percent of their income, or $2,868 per year. That's $239 a month to cover the cost of a car, insurance, gasoline, maintenance and any finance charges involved with the purchase or lease of the vehicle.

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