Minimum Wage vs. Living Wage

The minimum wage, established by federal (specifically through the Fair Labor Standards Act), state, and local government law, sets the lowest wage an employer may legally pay their workers. The federal minimum wage, which hasn’t changed since it was set on July 24, 2009, is $7.25 per hour. That translates to $15,080 for a full-time, year-round worker. States can set a minimum wage higher than the federal minimum, but not lower. All employers are required to pay whichever rate is higher: their state/local minimum wage, or the federal minimum wage. Although the minimum wage was set to allow workers enough income to stay out of poverty, it often hasn't kept pace with the true cost of living. As a result, many of those who make the minimum wage are living below the Federal poverty line. Others are above that, but cannot make enough to get an education to get a better-paying job. Others are living paycheck-to-paycheck.

The living wage is the amount of pay considered sufficient for you and your family to cover basic costs of living in a specific location, and should be adjusted to compensate for inflation. The purpose of a living wage is to make sure than anyone who works full-time should have enough money to live above the poverty level and avoid homelessness. A living wage does not include some basic buffers needed to improve one's quality of life or protect against emergencies. For example, it doesn't provide enough income for ever eating at restaurants, save for a rainy day or pay for education loans. It doesn't include insurance, including medical, or auto or renters/homeowners. In other words, it's enough to keep you out of a homeless shelter, but you'd still have to live paycheck-to-paycheck. If you can't afford insurance, and you get sick, you could still wind up homeless.Economists and policymakers use this information to determine the relative financial health of workers when comparing their pay with their living costs. There is no federal living wage law. However, more than 120 cities across the United States have established living wage laws applicable to employers who work on government contracts, whether at the state, county, or city level.

There are several key differences between the living wage and the minimum wage:

• • Calculation Criteria: The minimum wage is not connected to any government measurement of poverty, such as inflation or the cost of living. Its rate instead depends on Congress-approved raises, which are often influenced by the economy and business interests as a whole. The living wage calculates area-specific costs of living, including food, child care, health care, housing, transportation, and other necessities. While the minimum wage affects individual earnings, the living wage takes into account different household sizes, ranging from an individual to a couple with several children.

  • Regulation: The minimum wage is regulated by the federal government’s U.S. Department of Labor and/or by state and local governments if they choose to set a higher wage. A business typically must only comply with a living wage if it is set by a state/local government with whom that company has a contract.

  • Amount Dictated: While Congress determines the minimum wage, the living wage can be set by state and local governments or, for informational purposes, determined by economists.

Student Activity

Sources

• • Cost of Living Calculator - helpful!

  • http://www.howmoneywalks.com/living-wage-vs-minimum-wage-whats-the-difference/

  • http://livingwage.mit.edu/counties/29189

  • https://www.thebalance.com/living-wage-3305771

  • http://www.epi.org/publication/the-impact-of-raising-the-federal-minimum-wage-to-12-by-2020-on-workers-businesses-and-the-economy-testimony-before-the-u-s-house-committee-on-education-and-the-workforce-member-forum/

  • http://www.economist.com/blogs/buttonwood/2016/04/minimum-wages