The living wage is the amount determined to provide a decent standard of living. It should be sufficient to cover living costs anywhere. It should also be adjusted to compensate for inflation. The goal of the living wage is to ensure that all full-time workers have enough money to live above the federal poverty line.
Living Wage vs. Minimum Wage
The living wage is often confused with the national minimum wage. In fact, these two terms are used interchangeably. Originally, the U.S. Congress established the minimum wage with the goal of providing a living wage.
The minimum wage is the amount set by law to keep workers above the poverty line in their area. However, the minimum wage simply is not enough to provide a means of living. It is also insufficient to cover costs for health insurance, car insurance, or renters and homeowners insurance.
Living Wage vs. Poverty Level
In 2020, the Department of Health and Human Services defined the federal poverty level at $27,750 for a family of four. This equates to about $13.34 per hour for a full-time worker. The living wage should be at least higher than the poverty line.
A worker earning the minimum wage of $7.25 an hour would fall below the poverty line. A family of four would need two people working minimum wage jobs to hope to reach the living wage.
Cheapest and Most Expensive Cities
Even those earning minimum wage and living above the poverty line do not earn a living wage. For example, the cheapest urban area in the country is Brownsville-Harlingen, Texas. The living wage calculator at MIT says that a single person needs to earn $12.76 per hour to be able to live there.
This covers housing costs, healthcare, food, and transportation. If the national minimum wage is not the living wage in the cheapest city in the country, then it is not a living wage anywhere.
On the other hand, one of the most expensive urban areas in the United States is New York City. The living wage calculator at MIT estimates the living wage in Manhattan at $21.77 per hour for a single adult. The calculator assumes housing costs of $19,980 per year. It would be difficult to find an apartment in Manhattan for $1,665 a month. Even with a living wage, you would need to share housing with roommates.
Complications in Wage Determination
Determining a national living wage would be complex to implement. The costs of living vary between cities and regions. Many cities and states have adjusted their minimum wages for inflation, which offsets any increases in the cost of living.
The government would have to mandate certain areas to pay specific wages. When the government gets into such details, it turns the system into a command economy, where all economic decisions are made by the central government. This restricts the natural dynamics of a free economy and leads the country in the opposite direction of freedom.
A similar issue would arise in implementing a universal basic income. It is a governmental guarantee that everyone receives a minimum income. This idea has gained popularity as a means to offset job loss due to technological advancement.
The government has a legitimate role in determining the minimum wage. Congress should increase the minimum wage annually to ensure it keeps pace with inflation. While dealing with increases in the minimum wage, lawmakers should take a serious look at the amount required to live, not just to survive.
Living Wage Calculators
Living wage calculators show the hourly rate needed to cover typical basic costs in a specific location. These costs include nutrition, healthcare, rent, transportation, childcare, and taxes. Cost estimates are derived from government and non-profit surveys of these expenses.
They provide
The Massachusetts Institute of Technology’s living wage calculator is well-known. Developed by the institute in 2004, it is updated in the first quarter of each year. The calculator shows the minimum wage, poverty wage, and living wage for each of the 50 states and their counties. It also displays a numerical ranking, from highest to lowest, for wages for some professions.
Frequently Asked Questions (FAQs)
Which state has the highest minimum wage?
Washington has the highest state minimum wage at $14.49 per hour. It also has some of the highest local minimum wage rates in the country in SeaTac ($17.53 per hour) and Seattle ($17.27 per hour). The minimum wage in Washington, D.C. is slightly higher than in Washington State, at $15.20 per hour.
When was the last time the minimum wage was raised?
The federal minimum wage has been $7.25 per hour since July 24, 2009.
Was this page helpful?
Thank you for your feedback! Let us know why! Last
Sources:
The Balance only uses high-quality sources, including peer-reviewed studies, to support the facts contained in our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
U.S. Department of Labor. “Minimum Wage.”
EPI. “Raising the Federal Minimum Wage to $15 by 2024 Would Boost Wages for Nearly 40 Million Workers.”
Economic Policy Institute. “Correction: This is what the minimum wage would be if it kept up with productivity.”
Kaiser Family Foundation. “2021 Employer Health Benefits Survey.”
Office of the Assistant Secretary for Planning and Evaluation. “Poverty Guidelines.”
Living Wage Calculator. “Living Wage Calculation for Brownsville-Harlingen, Texas.”
Living Wage Calculator. “Bare Facts About Living Wage in America 2017-2018.”
Living Wage Calculator. “Living Wage Calculation for New York County, New York.”
Institute for Economic Policy. “Minimum Wage Tracker.”
Living Wage Calculator. “About the Living Wage Calculator.”
Minimum-Wage.org. “States with the Highest and Lowest Minimum Wage in 2022.”
Leave a Reply