Recent arguments about raising the minimum wage and ‘turn the minimum wage into a living wage’ have me realizing I’ve never heard anyone lay out what a ‘living wage’ actually means.
Not looking for a dollars and cents amount, rather exactly what that wage is supposed to cover.
Somewhere to live? Does that mean able to buy their own house? Cover the rent on an efficiency apartment? Pay half the rent of a shared apartment? Rent a room in someone else’s house? Buy an RV and pay for a slip to park it? Slip a few bucks to some property own to be let set up a tent in their back yard?
Food? Does all the beans and rice you can eat plus a vitamin pill a day cover it? Or three solid meals and two snacks a day, plus maybe a dinner out at a nice restaurant every week?
How about indulgences/addictions? Should it cover booze/pot/tobacco/other recreational drugs?
Clothes? Are we talking shopping at Lord & Taylor or Goodwill?
Transportation? A monthly bus pass or your own car plus gasoline and maintenance costs?
And so on, and so on. Medical costs? Cell phones? Cable television?
And all those amounts will have to vary depending on where the person lives, of course.
On top of that, do we assume we are just talking about the worker supporting himself? Or is one person supposed to bring home enough to support a partner and a child or two or more as well?
I think what’s generally meant by a layperson is enough to live alone (not rent a room in someone else’s place) and cover food, transportation, and medical needs (and child care if applicable). Obviously those will vary person to person.
While we’re at it, does “wage” mean before or after taxes? If the wage is $15/hour, the earner would be lucky to take home 10 of that. Are we considering FICA? Medical deductions and/or benefits?
Living wage would be the wage needed to live, given expenses. And yes, taxes would likely be an expense (sales or income, depending on earnings and where employee lives).
But a living wage does not account for any sort of retirement savings (beyond the taxes taken out to fund social security in US), and while I’ve certainly seen it sometimes calculated for larger, expected expenses that only come up occasionally (replacing appliances, etc. though that’s iffy in areas where rent covers those things as opposed to rural areas where renting is less of option), I don’t think it allows for saving for unexpected expenses (car crash or heart attack and hospital bills) because, of course, they don’t happen to everyone. There’s no real cushion, but it may not be strictly paycheck-to-paycheck (aforementioned predictable big expenses).
IME the term is not strictly defined but when people want a number for the US they use that MIT calculator. The already-linked explanation probably covers everything asked by the OP, but please let us know if it doesn’t.
Thank you for the links to the MIT calculator – very interesting, and sort of fun to play with.
But it raised another big question for me, in terms of how this ‘living wage’ would be used if we were to switch to using it. It gave required wages for a single adult with 0, 1, 2, and 3 children. Also for an adult with a stay-at-home spouse with the same numbers of children, and also for an adult with a full time employed spouse and those assortments of children.
Okay, it’s common sense it will take more money to house and feed, etc, a couple with three children than a single woman with no children – but does that imply that the required minimum wages set by the government would vary based on their family makeup?
It could make really large differences. As an example, it said the hourly wage for a single adult in Middlesex County, MA would be $14.21 while for an adult with one child it was $30.36. Does that mean the employer would basically have to more than double a woman’s pay if she had a child?
That doesn’t seem workable. Wouldn’t it just drive employers to discriminate against hiring people who have children?
Going the other way, do you cut someone’s wages if one of their children should die? Or if their spouse divorces them?
If a couple move in together, do they each start getting less money from their employers?
Minimum wage considerations were enshrineed in statutes and awards in Australia since the end of the 19th century. Excellent summary here.
A court case in 1907 (known as the Harvester case) provided a principle that became a long-standing national standard:
“fair and reasonable” wages for an unskilled male worker required a living wage that was sufficient for “a human being in a civilised community” to support a wife and three children in “frugal comfort”, while a skilled worker should receive an additional margin for their skills, regardless of the employer’s capacity to pay. [Wikipedia summaryof the case]
While it reflects the contemporary perception of a married female being home and family-bound, and female award wages were pegged as a fraction of male, it does recognise that living meant more than getting enough to eat to allow them to come to work the next day.
Only if someone is advocating setting the government (at whatever level) minimum wage equal to a sliding living wage scale. I’m sure someone has done so, although I don’t have an example on hand. It’s not required though. And AFAIK that calculator page isn’t making any policy recommendations; it’s merely setting out how much someone needs based on location and family composition. If a government wanted to use this information to set a single minimum wage, they could just pick one from the table. Yes, that would mean single people living alone would be required to be paid more than they “need”, and the couple with 10 kids still wouldn’t have enough (by the calculator’s standards.)
It can also be used as a basis for income redistribution programs, much akin to how we already handle programs (e.g. EITC) that are based on the federal poverty level, which also adjusts based on household composition.
Whether any of the above are a good idea or not is something we would probably have to discuss in GD.
A definition of a living wage used by the Greater London Authority (GLA) is the threshold wage, calculated as an income of 60% of the median, and an additional 15% to allow for unforeseen events.
Sounds related to all the children in Lake Wobegon being above average. (Yes, median not mean.)
More seriously, I don’t understand economics enough to guess what the overall impact of using a living vs. minimum wage standard would be. It sounds like it hasn’t been tried fully enough or long enough or widely enough for anyone to be very sure.