Nye Matta Senior Thesis 2025

Microeconomic Sustainability of the State Minimum Wage in Massachusetts

Nye Matta Senior Thesis | 2025

Nye Matta Senior Thesis Dr. Celik & Dr. Jewell 7 March 2025 Microeconomic Sustainability of the State Minimum Wage in Massachusetts The current minimum wage in the state of Massachusetts is $15.00, which leaves it vastly insufficient for most people. Despite numerically increasing exponentially over the previous decades, in contrast to inflation, the state minimum wage does not adequately follow the strength of the United States Dollar, resulting in even less sustainability for the average working American over recent years due to this loss of track (Economic Policy Institute). With housing prices and general consumer goods at an all-time high, the state minimum wage is not enough for an individual to live despite being offered many unskilled or even skilled labor jobs today (Zillow). Despite the state minimum wage's unsustainability, the grander federal minimum wage of $7.25 is even less sustainable than the limits held by the state (Department Of Labor Statistics).

At the same time, Massachusetts is among the most expensive states to live in, but the increased minimum wage still does not account for the increasing price of living in the United States.

These issues have made an even larger problem within the city of Boston. With the expenses incurred from living within a largescale American city, the results are exponentiated drastically, making the minimum wage even more unsustainable to the working citizen (Massachusetts Institute Of Technology). In this

paper, I will analytically prove this issue and show what it has led to in terms of the people it affects most.

To illustrate how unsustainable the minimum wage today is, take the example of an average working individual in the City of Boston and say that this person works eight hours a day and 40 hours a week, making a total of $600.00 a week untaxed and then $570.00 with the 5% state income tax in the least withheld bracket.

This $570.00 totals up to $2,280.00 a month, which, compared to the average monthly rent price of an apartment in the city - at $3,488.00 - is an apparent discrepancy (Apartments.com). While this scenario is extreme, it is unfortunately realistic, making it nonetheless important to consider how far the gap is, as there are absolutely zero other expenses we are taking into consideration except for net income and the price of rent. To understand the outcomes of this issue, we should first understand how these gaps ultimately come to happen. Firstly, the type of market that controls rent prices is usually one of two types: a monopolistic or an oligopolistic market in microeconomic terms. A monopolistic market is when, for example, a landlord offers varying houses with different features, sizes, and amenities; this sort of market is most commonly found outside of a city, where individually sized housing is more common. An oligopolistic market is when, for example, a large housing firm owns mass amounts of very similarly made housing areas, be that apartments, flats, or condominiums; these are more commonly found in cities with more significant housing developments and large buildings. In our discussion of the city of Boston, we will consider rent prices as controlled by an oligopolistic market. This demand for this market is strictly inelastic in the short and long term, meaning that no

matter what changes in the price take place, there will always be a consumer in demand for the housing. When this is paired with a system that has no government-regulated price ceilings, meaning that there is no legal limit to how much a seller can list their housing for sale within the city, it turns into a recipe for disaster from the viewpoint of a consumer, and, in our case, fully inaccessible to our hypothetical minimum wage worker.

Unfortunately, housing is not the only issue that makes this minimum wage unsustainable for someone being paid by the hour.

The next biggest payment that is most likely a necessity for nongovernment-funded citizens is utilities. The average cost of utilities for a median-sized living area in Boston is $200.00 monthly, which may be less or more depending on the size of the living area and the use of these utilities (Mass General Brigham). Utilities include heating, cooling, electricity, and water/sewer expenses. In Boston and the majority of the city's metro areas, utilities are also a type of monopoly. This sort of monopoly is run by a few companies that control massive portions of a certain sector, for example, National Grid or Eversource for gas or the Boston Water and Sewer Commission for water/sewage. These companies control pipelines and drainage systems, which are most likely out of your control, and your living situation automatically directs you to these company's services. Now that we have established a second expense on top of housing, we can adjust the price from -$3,488.00 to -$3,688.00. After your utility bill, the next most significant expense for a citizen is transportation. Now, things can get theoretical here, but for all intents and purposes of this discussion, we will assume that this hypothetical hourly-paying minimum wage worker does neither own nor lease a vehicle but chooses to

use public transportation instead as a means to save money. The most common public transportation within the city is the Massachusetts Bay Transportation Authority (Massachusetts Bay Transportation Authority). The MBTA charges $1.10.00 per oneway ride via a bus or light rail train for an adult. We will assume that this person rides twice a day, from home to work and back, totaling $2.20.00 daily and $66.00 per 30-day month (MBTA).

This drags our balance to -$3,754.00. The MBTA is another example of a natural monopoly market. However, it is government-funded and thus heavily regulated in terms of pricing and freedom for pricing, much unlike the massive utility conglomerates. If this hypothetical person were to have a vehicle, there would need to be an account for vehicle payments, as in lease payments if needed, average maintenance costs, gasoline or diesel costs, and parking costs, each of which are different kinds of economic markets, respectively. It is now worth mentioning that the conventional “first rule” of microeconomic theory is that “rational people think at the margin.” This “rule” defines that in economic survey terms, there is no room for outliers, and the margin is what is most practical financially for you in your financial situation. For example, in our scenario, owning a motor vehicle would, no doubt, be heavily impractical and far from any margin in terms of this hypothetical, when access to public transportation is available. The next necessity worth discussing is groceries and all tangible goods. The average monthly spending on these items is approximately $350, and this also greatly depends on the individual, but we will say this is the case for our hypothetical person who lives alone (MIT). With our monthly cost reaching $4,104.00, we are beyond all levels of sustainability, but there is

still more to go. The market for groceries is arguably the most interesting, as it heavily depends on the region. It can be a monopolistic competition, where many stores sell similar but slightly differentiated products, like different types of pasta or different flavors of toothpaste; these kinds of markets are most common in the city since there are many stores selling many competing products. There are also regular oligopolistic markets, where fewer stores are near one another, and one is most convenient for many people, for example, a Walmart in a more rural area, which is farther from the nearest Stop & Shop; this is more common in rural areas, however. What makes this part of the discussion arguably most interesting is the subsegment differentiation, which presents itself as a perfectly competitive market in which I have the most background research. A perfectly competitive market is a market where many sellers sell lots of products that are essentially the same and make no effective difference when one brand is compared to another. These subsegments cause an even more interesting microeconomic discussion, as one has the choice of different quality items, like organic vs. regular produce or name-brand vs. proprietary items.

The final mandatory item worth discussing for the city of Boston is health care. Unlike most states, Massachusetts requires that you must have a health care plan; otherwise, your taxes may be penalized; this is why it is necessary to discuss this as a part of our example. The average monthly premium for healthcare is $661.00, putting our total tally on net monthly expenses to live in the City of Boston to -$4,765.00 (KFF). Health care is largely an Oligopolistic market, as it is run by pharmaceutical partners in companies like Blue Cross Blue Shield or Aetna. These Oligopolies make a

considerable share of the market all over the state, as most people are likely referred to them through their employment partnerships that come with discounts or other benefits. Finally, our tally is set at just shy of $5,000.00 in monthly expenses for bare essentials, which our hypothetical person can really only make half of working full time. We can see the discrepancy. Ultimately, there are many reasons why this is a problem beyond this portrayal; however, this gap is nonetheless an explanation in microeconomic terms.

With the previous example explaining a realistic but unlikely perspective of the insufficiency of the state minimum wage in Massachusetts, there are other ways in which we can translate these numbers to more realistic standards. While it is barely plausible to have the previous hypothetical actually take place since rational people think at the margin, and there are more rational choices in the housing market for someone who can’t provide enough to pay such a high rent, a more similar scenario would arise from someone who worked in a higher-paying, nonskilled field. A majority of people in the unskilled labor force within the state are immigrants, and they make an average of $20.45 an hour within the city (ZipRecruiter). While this number is higher than the $15.00 minimum wage, these jobs, like dishwashing, cooking, or other jobs that require basic on-the-job training rather than a college degree, are what define this category.

From a microeconomic standpoint, the lack of these jobs for people like immigrants drives the social divide. While this claim seems like a pivot or a new idea entirely, there is a microeconomic explanation defining the insufficiency behind this divide. Without needing to draw out the example, as I did in the previous scenario,

there are other ways in which the gap can be explained. In more simple terms, this idea starts with an influx of immigrants, who may be unqualified for more skilled work positions due to language barriers or other limitations. These immigrants then get unskilled jobs paying the supposed $20.45 in the city, and then in an effort to afford a place to live, they move to a lower-income neighborhood, like Roxbury, which has a yearly average median income of $37,000.00, rather than Seaport which has a yearly average median income of $167,000.00 (Boston Indicators). Now, living in these low-income neighborhoods, problems of safety and security arise, as well as, most drastically, quality of life problems.

Having higher crime rates in day-to-day life and fewer opportunities to luxuriate within your community cause a significantly lower quality of well-being. Now, say your family were to live in a house within this neighborhood; the Roxbury public schools are significantly lesser in quality than those of other areas in Boston (Allen). Now, with subpar quality education, the children of these immigrants are less likely to have the same opportunities as people living in higher-income neighborhoods, all because of the pay class divide driven by microeconomic shortcomings. This is just an example of the problems that an insufficient wage causes to the people it affects, including their families. Within this issue, it is worth considering what defines a quality of life since, while this is a subjective discussion, there are set definitions of what is quantified that are worth looking into to understand this concept better. For example, HSBC Bank leads a yearly study on various countries' quality of life, as well as per individual, and to assess the quality of life, HSBC uses the terms: “financial knowledge, fitness, mindset, and planning habits” in

order to give a value (HSBC). This value would be significantly lower for an individual who worked in an unskilled field and lived in a lower-income area by default due to factors that are out of their control to begin with. Thus, this predicament creates a vast gap within the populations, even within the same city itself, which is most definitely an issue.

With these life quotients defined, like the ones that we have established previously, like our hypothetical minimum wage worker and then our more sustainably paid, lower-class worker, we are left with the corporate American discrepancy that effectively defines the life cycle of the city. Having a smaller paycheck leaves fewer possibilities for better opportunities for these individuals and their families in the future. This reality is because the labor market in Boston is not properly susceptible to absorbing more nonskilled workers for a sustainable wage, thus leading to a cycle of increased poverty rates and diminished quality of life. To understand this idea in a better light, take, for example, the economy of another big city, Miami, Florida, in 1980. The Mariel Boatlift study was conducted in Miami in 1990 by economist Dr. David Card, 10 years after Fidel Castro allowed Cuban citizens to leave the country freely between April and October 1980. About 125,000 Cubans immigrated to Miami, where the economy of nonskilled workers increased by about 20% and the entire total labor force by 7%. The impressive part of this study was that the economy adjusted to this influx nearly perfectly, and in the long term, there were no effects on previous members of the labor force, thus creating a successful nonskilled labor economy based upon the minimum wage (then $3.10). The economy in Miami successfully absorbed the massive wave of immigrants due to the fact that the

area was essentially primed for such a migration wave by preparing in smaller waves throughout the previous two decades.

In conclusion, Card states: “This study shows that the influx of Mariel immigrants had virtually no effect on the wage rates of lessskilled non-Cuban workers” (Card 256).

Now that we have established the differences between the economy in Miami in 1980 and Boston currently, we can examine how and why the nonskilled wage market in Boston cannot accept more workers currently because there is simply not enough room in the system to accept more nonskilled labor without a cost. The waves of immigration into Boston took place at much earlier intervals than other cities, most especially Miami, which we had previously discussed. Lots of Irish and Italian immigrants took up lots of nonskilled labor positions throughout New England during the early 1900s, thus leaving less room for new waves of immigrants to have a place to thrive within the minimum wage threshold. Having an economy not primed towards new immigration strictly limits the amount of opportunities available.

Take the field of garbage disposal, for example, which is an oligopolistic market style. This market is heavily saturated, and it is much more difficult to successfully deploy new workers or even scale due to the number of people holding each business. Whereas deploying a minimum-wage garbage disposal endeavor in an economy like that of Miami in 1980, the opportunities would have been significantly less saturated; combined with the net, increasing demand caused by the influx of migration, there would have been a perfectly reasonable opportunity for a successful entrepreneurial endeavor.

Taking a pivot to our day-to-day choices, relating tangentially to an idea previously mentioned in the Mariel Boatlift, the minimum wage in Miami, Florida, in 1980 was $3.10 an hour, and it is currently $13.00 an hour. The microeconomic concept of inflation mismatch is where this is explained, and this phenomenon is observed when prices increase due to inflation of the observed currency. In our case of explaining minimum wage, inflation mismatch can be observed directly with Massachusetts and its changes. In 1980, the minimum wage in Massachusetts was $3.10, and it is currently $15.00. $3.10 was worth approximately $11.47 today, which is significantly under $15.00; however, this mismatch can be observed to be even greater for consumer goods, as we discussed in our initial analogy of the minimum wage worker. So, to simplify this idea, while $3.10 in 1980 was less than $15.00 in 2024, items that those $3.10 could buy are significantly increased to what $15.00 can buy. An example of this in practice is a carton of a dozen eggs; in 1980, an average carton of a dozen eggs at a regular grocery store would be approximately $0.99, which equates to $3.80 today, whereas now, the cheapest dozen of eggs (proprietary store brand and non-organic) costs shy of $6.00. It is also worth mentioning that the concept of organic certification on produce and consumer items was not approved by the FDA in 1990. However, the first organic items were also in a significantly cheaper price margin due to the inflation mismatch.

With this concept, we can now evaluate the minimum wage today. In Massachusetts, the minimum wage has been $15.00 since 2023. Compared to recent increases, stability this long has been unusual, as throughout the COVID-19 pandemic, the minimum wage increased from $12.00 in 2019 to $13.50 and eventually all

the way to $15.00 in 2023. This rapid increase that took place throughout the pandemic is completely understandable, as $12.00 was significantly too low to be sustainable through the mass increase in prices of consumer goods; however, the United States Dollar has significantly inflated since 2023, as $5.00 in 2023 is almost $5.20 in today’s money. While not seemingly much, this inflation is causing a deeper discrepancy in the inflation mismatch that is taking place in the economy as we speak. As problematic as this idea is, there is good news, as the local state legislature is proposing an increase to as high as $20.00 by 2027, which would cause a very reasonable increase for those in hourly paid positions regardless of the skills required for their employment (CBS).

People from all ranges, from students to substitute teachers, would benefit from this increase, as it would make an incredibly helpful addition to their paycheck against the buying power of $15.00 today. Despite this hopeful news, we cannot be certain that the minimum wage will increase, as even though this is projected statewide to happen by 2027, we still are not sure.

As previously understood throughout this paper’s analysis of the problematic minimum wage, we have established that there is a call to change the $15.00 statewide minimum, as it is directly unsustainable for a person supporting themselves, let alone combined with a family. While inflation is nationwide, minimum wage changes are statewide (not accounting for changes in local price differences that we have also already mentioned). With that being said, $15.00 has not been moved since 2023, despite the United States Dollar increasing by 3.4% since the last jump.

Before that jump, many periodic jumps took place, not equalling what the dollar is currently at. This is problematic since it is

causing a divide; as the prices for general consumer goods increase, pay does not. As we previously discussed, the local state legislature is proposing an increase of $20 by 2027, and for now, all we can do is hope that this will happen since there is no way to know it will happen until lawmakers announce it. With inflation being proposed to increase by 2.1% by 2027, the United States Dollar today will have $15 worth $15.315 then. Thus, an increase to $20 will not just adjust for inflation but also begin bridging the gap that minimum wage places, as it is insufficient for the average person, as we now know. If we look at what other states are doing to attempt to bridge this gap, the best example to look at is Washington. Washington’s process can be explained functionally as the local state legislature evaluates inflation annually and adjusts the statewide minimum wage, here making it the current highest in the country at a record high of $16.66 in 2025 (GovDocs). This is a policy that is unique to Washington; however, it seems to be the most efficient, as Washington also ranks amongst the highest states in the country in terms of best quality of life, another concept we previously discussed (USNews).

This sort of system to adjust minimum wage also makes for a much lower poverty rate; despite the city of Seattle amassing a large homeless population, the state itself economically thrives due to policies that support the minimum wage and nonskilled laboring, something that we do not see across the rest of the United States. Policies like this would make it much more sustainable throughout the country to allow people to bridge the gap that makes the economic divide so insufficient. While this discussion is highly theoretical, there is reason to understand why it is practical to think this way. The government across states thinks differently,

and this is for many reasons; for the sake of the idea being discussed, I will not get into politics in this paper; however, through my critical, unbiased analysis, I can confidently say that the government of the state of Washington has the most functional policies regarding minimum wage and the sustainability of it for its citizens.

With all of our previous ideas being summarized, it is safe to determine that the current minimum wage in the state of Massachusetts is heavily insufficient for the average person whom it affects. Throughout our breakdown of these issues, it is important to understand how this can be changed, however. With the current minimum wage being set at $15.00 statewide, it is simply not enough money to support the average person who can’t provide skilled labor, let alone thrive in this economy, whose prices are ever-increasing daily. Not allowing for the minimum wage to increase due to the factors inhibited by the inflation mismatch causes even more struggle because when the $15.00 minimum wage was set previously, inflation was not as strong as it currently is. Wealth divides created through the instability of the minimum wage warrant a discussion of this issue for a change that is needed. While I can discuss how this is a long-lasting political issue that stems from much more than just the economic situation, the current economy within the city of Boston is simply not susceptible to adjustment, as there is a heavy saturation of nonskilled workers that already have taken all the jobs that are required, since the economy’s demand is not scaling at a rate that can match the rate of surplus in which nonskilled labor is being supplied, massive gaps in pay are created leaving many with pay that is inadequate to support themselves, or no job at all, which is

much worse. This issue leads to an increase in poverty rates and people without enough money to support themselves, and these people then must rely on the subsidizing system to help them out, which is also very competitive.

To conclude this entire discussion, there is one more hypothetical question that I think is worth discussing. Building off our first hypothetical with our base pay minimum wage worker living in the city, who clearly has no means to support themselves as their monthly expenses lead to an amassing debt, decides that they should enroll in the provided government subsidy programs for Section 8, and SNAP (subsidized housing and food stamps programs provided by the city). These programs are both competitive and have a wait time of years to join. Once applied, our hypothetical minimum wage worker doesn't get in and continues to amass debt, as there is no confirmation that you can be eligible for these programs besides meeting the criteria. With our hypothetical being discussed in conclusion, the city of Boston is unfit for its own labor market, and through analyzing the evidence, it is safe to claim that work must be done in order for this economy to be successful for more people, but before that, it must be able to work for its current people, and that is something that must be done soon in order for changes to actually be made.

As complicated a situation as this is, Boston is not alone in the struggle for a balanced economy, but there is hope that changes can eventually be made.

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