Yesterday, Bio-Diesel was $4.76 per gallon. That's the bad news. The good news is I can drive a long way on one of those gallons and I make an OK salary.
Others are not so lucky. I call them the Driving Class.
Over the past few years relatively inexpensive fuel along with the high relative cost of living in the Washington, DC metro area (especially housing) has resulted in unskilled workers living progressively further and further away from low paid jobs. They spend hours each day commuting to work a shift ringing a cash register, stocking grocery shelves, moving boxes in a warehouse, and generally doing the things that need to be done, but require little or no skill to perform. For people making a good salary, the increased price of fuel is not welcome, but can be dealt with. For the driving class, the situation is becoming untenable.
As an example, consider the following:
70 miles one way commute,
25 miles per gallon,
$8.00 per hour salary, and
40 hours per week.
This equates to $112 per week cost for fuel. This expense must be born with a $320 gross (before taxes) base weekly salary. With 35% of gross salary being used to buy fuel, there is not enough left to cover basic living expenses. I have presented this as an example, but one of the guys on my team has a daughter who is in exactly this situation.
What can she do? Some would say - "She should move closer to her job!" Given her salary, she could not afford even a very inexpensive apartment, so this is not really an option. Others might say - "She can always find a job closer to home..." She would, if the jobs were available. Outside of the metro area, unskilled positions are difficult to find and generally pay minimum wage ($5.85 per hour, moving to $6.55 per hour on July 24, 2008). As it stands, she makes up for the added cost by working longer days so that each trip nets more income. The current tight local labor market makes additional hours easier to come by than if unemployment were higher. Of course, she also relies on her family.
Zooming out from the personal level, what does this all mean? The minimum wage change hints at the answer to that question. As fuel prices continue to rise (and we all know they will!), those in the driving class will be forced to make the choice between continuing to drive and dropping out. As more choose the latter, employers will have no choice but to raise salaries to entice them back. Given this type of pressure, a US inflationary cycle is almost a foregone conclusion. What about the rest of the world? The interconnected nature of the world economy and crude oil price increases would seem to drive this same conclusion not just for the US, but for the rest of the world as well.
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