What Is a Living Wage?
The term living wage refers to a theoretical income level that allows individuals or families to afford adequate shelter, food, and other necessities. The goal of a living wage is to allow employees to earn enough income for a satisfactory standard of living and prevent them from falling into poverty. Economists suggest it should be enough to ensure that no more than 30% of this income gets spent on housing. As such, living wages are often substantially higher than the legal minimum wage.
Key Takeaways
- A living wage is a socially acceptable level of income that provides adequate coverage for basic necessities such as food, shelter, child services, and healthcare.
- The living wage standard allows for no more than 30% to be spent on rent or a mortgage and is sufficiently higher than the poverty level.
- The concept of living wages isn't new and dates back to early America when workers demanded higher pay.
- The living wage shouldn't be confused with the minimum wage, which is the lowest amount of money someone can earn as mandated by law.
- Supporters of living wages say they boost productivity and employee morale while critics argue they could hurt the economy and force corporations to reduce hiring.
How a Living Wage Works
What constitutes a living wage may vary slightly depending on who's defining it. According to the Global Living Wage Coalition, some 60+ definitions and descriptions of the term exist. Despite some deviations, the organization found certain common themes when comparing how it is defined in human rights declarations, by non-governmental organizations (NGOs), and by others. So what exactly is a living wage?
The consensus is that a living wage provides individuals with enough income to support themselves without falling below the federal poverty line (FPL). In essence, it gives workers and their families the means to maintain a decent standard of living so they can afford:
- Housing
- Healthcare
- Food
- Education
- Regular savings
- Other necessities
Although the idea of a living wage isn't new, it became a hot topic following the Great Recession. The economic crisis highlighted the fact that some individuals just can't afford to make ends meet. Some experts believe that people who don't earn a living wage face certain challenges, such as having to work more than one job, pulling their children out of school, and succumbing to unexpected health issues that they can't afford to address.
According to research from MIT, the living wage in the United States was $25.02 per hour ($104,077.70 per year) before taxes per year in 2022 for a family of four (two working adults with two children). That's an increase from $24.16 ($100,498.60 per year) in 2021. Of course, a living wage varies by family size and the cost of living in a particular city or location.
History of the Living Wage
As noted above, the movement for a reasonable living wage is hardly new. Boston ship carpenters came together in 1675 to demand higher pay. The American Federation of Labor, founded in 1886, proposed a general living wage that adequately supported a family and maintained a standard of living higher than the 19th-century European urban working class.
Congress passed the Fair Labor Standards Act (FLSA) in 1938, which established the first national minimum wage of $0.25/hour. The passage of the law marked a turning point for the labor movement in the United States. In 1968, the federal minimum wage was set at $1.60 an hour (about $14.23 per hour in 2023 dollars), but unfortunately, it slowly declined after the late 1960s due to inflation.
The federal minimum wage rose to $7.25 in 2009 and hasn't changed. Many states, cities, and municipalities have minimum wages higher than the federal minimum wage. These minimum hourly rates increased in 22 states in 2024 for as many as 9.9 million workers. For instance, California and New York City-area increased their minimum wages for nonexempt workers from $15.50 and $15 respectively to $16 per hour.
The minimum wage movement is aimed at establishing a living wage.
Living Wage vs. Minimum Wage
Don't confuse the living wage with a minimum wage. The latter is the lowest amount of money a worker can earn as mandated by law. Many experts argue that the federal minimum wage should be increased to align with a living wage. They point out that the minimum wage does not provide enough income to survive as it doesn'trise with inflation; the minimum wage can only increase with congressional action.
Although the minimum wage dollar amount has risen since its introduction by President Franklin Delano Roosevelt in 1938, the constant dollar amount, which accounts for the effects of inflation, has decreased for American households since 1968. As noted above, the federal minimum wage of $7.25 per hour has remained at that level since 2009, which means it hasn't kept up with thecost of livingsince the late 1960s.
In 1968, the federal minimum wage was $1.60 per hour but had an inflation-adjusted value of around $14.23 per hour. Most states have their own minimum wage laws to try and align it more closely with a living wage. In some states, the minimum wage is actually below the federal minimum wage. When this occurs, the federal minimum applies.
In 2019, the U.S. House of Representatives passed an amended version of the Raise the Wage Act of 2019, which would have gradually increased the federal minimum wage to $15 by 2025. The bill died in the Senate, but the debate about whether to lift the minimum wage rages on. Nonetheless, several states and cities raised the local minimum wage and several companies have done so voluntarily at their workplaces. As noted above, 22 states raised their minimum wages in 2024. The table below indicates the rates for 2023 and 2024 for those that raised their rates.
| 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 and Poverty Levels
Poverty in the U.S. may partly have to do with the lack of a living wage in all states. The Raise the Wage Act of 2021, an updated version from 2019, could help reduce or eliminate low wages that do not lift families and individuals out of poverty. The bill aims to increase the federal minimum wage over five years for regular employees, along with those who receive tips and new workers under the age of 20.
The federal minimum wage of $7.25 an hour in many states is not enough to raise a family of four above the federal poverty level, which is $30,000 in 2023. As such, working and earning the federal minimum wage isn't enough to get out of poverty for families and not enough money to be classified as a living wage.
Advantages and Disadvantages of the Living Wage
Living wages are very controversial. As such, the idea surrounding them and their effects on the economy are hotly debated. We've outlined some of the arguments for and against living wages.
Advantages
Supporters of a living wage argue that paying employees higher salaries actually benefits corporations as a whole. They claim that employees who earn a living wage end up being more satisfied, which helps to reduce staff turnover.
Another advantage to living wages is that they reduce corporate costs associated with recruitment and training. Proponents of living wages point out that higher wages boost employee morale, which can often lead to higher productivity. This, in turn, allows companies to benefit from increased worker output.
Disadvantages
Despite the obvious support, there are critics who suggest leaders should scrap the idea of living wages altogether. Naysayers believe that implementing a living wage establishes a wage floor, which harms the economy by hurting companies, especially small businesses that can't afford to raise salaries.
Moreover, companies may reduce the number of employees hired if they are forced to pay increased wages. This creates higher unemployment, resulting in a deadweight loss, as people who would work for less than a living wage no longer get offered employment.
Pros
Benefits corporations
Boosts employee satisfaction
Reduces corporate turnover
Lowers recruitment and training costs
Cons
Creates wage floors
Harms economy
Reduces hiring
Increases unemployment through deadweight loss
Calculating the Living Wage
As noted above, a living wage is not the same thing as a minimum wage. Earning a living wage means you can pay necessary costs, including shelter, food, healthcare, childcare, taxes, and transportation. In addition, a living wage may be different depending on your circ*mstances, including the state and town in which you live. In 2004, MIT created a Living Wage Calculator, which is updated in the first quarter of every year.
This online calculator provides the living wage, minimum wage, and poverty wage for 50 states plus counties and the District of Columbia. If you use the calculator, first plug in the state, then choose from a list of counties. The calculator shows you the wages for individuals, couples (one or both working), and families with up to three children.
Alternatives to a Living Wage
One alternative to a living wage could be a liveable federal minimum wage that allows individuals and families to earn enough to pay for basic necessities and medical care.
Another alternative is a universal basic income from the federal government that covers basic living costs. There are various plans around universal income, from only giving money to those earning below the poverty line to paying every citizen a certain amount of money.
The U.S. does not offer this type of income yet, although some might suggest President Biden's $1.9 trillion American Rescue Plan was a step in this direction. In July 2021, families who qualified received government-issued cash benefits for each child. The program lasted only for 2021.
What Is the Living Wage in the U.S.?
The living wage in the United States was $25.02 per hour (or $104,077.70) per year before taxes for a family of four with two working adults and two children in 2022. But this varies state by state. The highest livable wage in 2024 was for Massachusetts for a total of $128,086 while Mississippi had the lowest living wage for a total of $80,766. New York's livable wage was $113,131 while California, Texas, and Wisconsin had living wages of $117,478, $89,045, and $96,283 respectively.
Is $15 an Hour Considered a Livable Wage?
Raising the federal minimum wage to $15 an hour from the current $7.25 an hour still doesn't provide a livable wage to many low-income adults and families in certain locations. Earning $15 an hour at a full-time job would equate to approximately $31,200 before taxes, meaning that this increase would still not meet a livable wage in most states.
What Is the Difference Between a Living Wage and a Minimum Wage?
A minimum wage is the lowest amount a worker can be paid hourly determined by law. Paying an individual below the minimum wage is illegal. A living wage is the amount an individual or family would need to make to avoid living in poverty. This amount is usually higher than the minimum wage and is not mandated by law.
The Bottom Line
A living wage is a hypothetical level of income that is meant to show how much money is needed for people to afford things like food and shelter. This number depends on certain economic factors, including inflation, as well as the cost of living in an individual's area. There is no concrete number, though, as it varies on who is calculating it. But the consensus is that it should be enough to help keep people out of poverty.
