The concept of a living wage refers to a level of income that allows individuals or families to afford adequate shelter, food, and other essential necessities. The primary objective of a living wage is to provide employees with enough income to maintain a satisfactory standard of living and to ensure they remain above the poverty line. Economists generally agree that a living wage should enable no more than 30% of this income to be spent on housing, often making it significantly higher than the legal minimum wage.
Key Takeaways
- A living wage is a socially acceptable level of income that ensures adequate coverage for basic needs such as food, shelter, childcare, and healthcare.
- Typically, it allows for no more than 30% of income to be spent on housing costs and is substantially higher than the poverty level.
- The idea of living wages dates back to early America when workers demanded higher pay.
- It is distinct from the minimum wage, which is the lowest legal pay for workers.
- Supporters claim that living wages increase productivity and morale, whereas critics argue they might harm the economy and reduce hiring by corporations.
How a Living Wage Works
What constitutes a living wage may vary depending on who defines it. According to organizations like the Global Living Wage Coalition, over 60 definitions and descriptions exist. The consensus is that a living wage provides enough income for individuals and families to maintain a decent standard of living and covers necessities such as:
- Housing
- Healthcare
- Food
- Education
- Regular savings
- Other essential needs
The discussion around living wages gained momentum after the Great Recession, highlighting the struggle of individuals to make ends meet. Experts believe that employees earning below a living wage face issues such as multiple jobs, educational setbacks for their children, and unaffordable health problems.
Research by MIT indicated that, as of 2022, a living wage in the United States was $25.02 per hour ($104,077.70 per year before taxes) for a family of four. This was an increase from $24.16 per hour in 2021. The required living wage varies with family size and local cost of living.
History of the Living Wage
The battle for a reasonable living wage is not new. In 1675, Boston ship carpenters demanded higher pay. In 1886, the American Federation of Labor advocated for a wage sufficient to support a family at a higher standard of living than the European urban working class of that time.
The 1938 Fair Labor Standards Act (FLSA) marked a pivotal moment by establishing the first national minimum wage of $0.25 per hour. By 1968, the federal minimum wage was $1.60 an hour (equivalent to about $14.23 per hour in today’s dollars). Unfortunately, inflation eroded its value post the late 1960s.
Despite a rise to $7.25 in 2009, the federal minimum wage hasn’t changed. Several states, cities, and municipalities have set higher minimum wages. In 2024, 22 states increased their minimum wage, affecting approximately 9.9 million workers.
| 2024 Minimum Wage Rate Increases | ||
|---|---|---|
| 2023 | 2024 | |
| Alaska | $10.85 | $11.73 |
| Arizona | $13.85 | $14.35 |
| California | $15.50 | $16.00 |
| Colorado | $13.65 | $14.42 |
| Connecticut | $15.00 | $15.69 |
| Delaware | $11.75 | $13.25 |
| Hawaii | $12.00 | $14.00 |
| Illinois | $13.00 | $14.00 |
| Maine | $13.80 | $14.15 |
| Maryland | $13.25 | $15.00 |
| Michigan | $10.10 | $10.33 |
| Minnesota | $10.59 | $10.85 |
| Missouri | $12.00 | $12.30 |
| Montana | $9.95 | $10.30 |
| Nebraska | $10.50 | $12.00 |
| New Jersey | $14.13 | $15.13 |
| New York (NYC, Long Island, Westchester) | $15.00 | $16.00 |
| New York (remaining areas) | $14.20 | $15.13 |
| Ohio | $10.10 | $10.45 |
| Rhode Island | $13.00 | $14.00 |
| South Dakota | $10.80 | $11.20 |
| Vermont | $13.18 | $13.67 |
| Washington | $15.74 | $16.28 |
Living Wage vs. Minimum Wage
The minimum wage is the lowest amount a worker must be paid by law, whereas the living wage is often higher and designed to ensure a sustainable standard of living. Many argue for increasing the federal minimum wage to align better with a living wage since it doesn’t automatically adjust for inflation.
Living Wage and Poverty Levels
Poverty in the U.S. partially results from the absence of a comprehensive living wage policy. For instance, the $7.25 per hour federal minimum wage fails to lift a family of four above the $30,000 federal poverty level as of 2023.
Advantages and Disadvantages of the Living Wage
Advantages
- Benefits corporations: Satisfied employees and reduced turnover.
- Boosts employee satisfaction: Higher wages lead to increased morale and productivity.
- Reduces corporate turnover: Decreases recruitment and training costs.
Disadvantages
- Creates wage floors: Potential harm to smaller businesses and economies.
- Reduces hiring: Companies may hire fewer employees to offset higher wages, causing unemployment to rise.
Calculating the Living Wage
MIT’s Living Wage Calculator provides the living wage, minimum wage, and poverty wage for the U.S. It allows users to determine required wages for individuals and families based on specific locations and family dynamics.
Alternatives to a Living Wage
One alternative is a livable federal minimum wage that covers basic necessities. Another is implementing a universal basic income to ensure a baseline standard of living, akin to temporary measures introduced under President Biden’s American Rescue Plan in 2021.
What Is the Living Wage in the U.S.?
As of 2022, the living wage for a family of four ranged widely, being highest in Massachusetts ($128,086) and lowest in Mississippi ($80,766). For large states like New York, it stood at $113,131, while it was $117,478 in California, $89,045 in Texas, and $96,283 in Wisconsin.
Is $15 an Hour Considered a Livable Wage?
A $15 per hour wage, resulting in roughly $31,200 annually before taxes, falls short of a livable wage in many states, making it insufficient for low-income earners to rise above poverty.
The Difference Between a Living Wage and a Minimum Wage
A minimum wage is legally mandated and sets the lowest pay rate for workers. In contrast, a living wage is usually higher, designed to avoid poverty, and is not mandated by law.
The Bottom Line
A living wage represents a hypothetical income level enabling economic stability and meeting essential needs. Its value varies based on local cost of living and economic factors but focuses on keeping individuals above the poverty line.
Related Terms: standard of living, minimum wage, poverty line, cost of living.
References
- National Low Income Housing Coalition. “NLIHC Releases Out of Reach 2022: The High Cost of Housing”.
- Global Living Wage Coalition. “What Is a Living Wage?”
- Ethical Trading Initiative. “A Living Wage for Workers”.
- Massachusetts Institute of Technology. “NEW DATA POSTED: 2023 Living Wage Calculator”.
- University of Maryland. “A LIVING WAGE”.
- U.S. Department of Labor. “History of Federal Minimum Wage Rates Under the Fair Labor Standards Act, 1938 - 2009”.
- U.S. Department of Labor. “History of Federal Minimum Wage Rates Under the Fair Labor Standards Act, 1938 - 2009”.
- U.S. Bureau of Labor Statistics. “CPI Inflation Calculator”.
- U.S. Department of Labor. “Minimum Wage”.
- U.S. Department of Labor Wage and Hour Division. “State Minimum Wage Laws”.
- Economic Policy Institute. “Twenty-two states will increase their minimum wages on January 1, raising pay for nearly 10 million workers”.
- State of California Department of Industrial Relations. “Minimum Wage”.
- New York State. “Minimum Wage”.
- U.S. Congress. “Raise the Wage Act”.
- U.S. Congress. “Raise the Wage Act of 2021”.
- U.S. Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation. “Poverty Guidelines”.
- Congressional Budget Office. “How Increasing the Federal Minimum Wage Could Affect Employment and Family Income”.
- Massachusetts Institute of Technology. “About the Living Wage Calculator”.
- Massachusetts Institute of Technology. “Living Wage Calculator”.
- The White House. “President Biden Announces American Rescue Plan”.
- The White House. “The Child Tax Credit”.
- World Population Review. “Livable Wage by State 2024”.
