Here’s the distinction between a “minimum wage” and a “living wage,” as well as why it matters in US.
Image via GORDON BETCHERMAN
Near-historic price hikes for necessities like food and petrol have focused attention on a key economic question: How much money does a worker need to make to make ends meet?
Over the last year, the cost of eggs has nearly doubled, while the cost of milk and bread has increased by roughly 15%. Even after declining from a summer high, gas prices are still 10% higher than a year ago. While price hikes have moderated in recent months, they remain near a 40-year high.
A raise in pay has lessened the blow for some. By the beginning of 2023, about half of the states in the United States have raised their minimum salaries. Meanwhile, some prominent corporations recently increased entry-level salaries. Target, for example, increased its starting wage to $24 per hour last year.
As cost hikes continue and workers struggle to keep up, terms such as “poverty wage,” “minimum wage,” and “living wage” are resurfacing, affecting discussions about what it means to make enough and who chooses where the line is drawn.
However, the definitions and consequences of these terms are frequently neglected, further muddying a centuries-old issue that affects both workers and employees.
“Ultimately, this comes down to a philosophical matter of what the minimum requirements truly are,” said Steve Allen, an economist at North Carolina State University’s Poole College of Management.
Here are the distinctions between a poverty wage, a minimum wage, and a livable wage, as well as why they are important:
Wage of Poverty
A poverty wage is an amount of compensation that would put a full-time worker below the federal government’s poverty line, which is determined each year.
The government began measuring the poverty line in the mid-1960s, shortly after President Lyndon B. Johnson declared a “war on poverty.” Mollie Orshanksy, a Social Security Administration employee, created the measure by increasing the cost of food by three, because many economists believed that food costs should account for one-third of a household’s budget at the time.
“Lyndon Johnson wanted a means to demonstrate what people needed to survive on,” Amy Glasmeier, a professor of economic geography at the Massachusetts Institute of Technology and the developer of a living wage calculator, told ABC News.
The method of calculating the poverty line has stayed unchanged over the decades, although officials have adjusted the gauge each year to account for inflation. The poverty line is a uniform metric for all 48 states in the continental United States and Washington, D.C., although the federal government has devised unique measurements for Hawaii and Alaska.
Many economists see the poverty threshold as archaic since it extrapolates entire financial situations from a single category of prices and remains uniform regardless of regional cost-of-living disparities, according to Glasmeier.
“National data links New York to Tupelo, Mississippi,” she explained. “It’s about the same as the distance between Mars and America.”
The poverty line is used to evaluate whether people are eligible for a variety of federal benefit programmes, including the Supplemental Nutrition Aid Program, or SNAP, sometimes known as food stamps, and school meal assistance.
Last year, the poverty line for a one-person household was $13,900, which translates to around $6.80 per hour when divided by the amount of hours worked by a full-time employee in a given year.
The federal department of Health and Human Services will reveal the poverty level for 2023 later this month.
Image via Camden, New Jersey (Is one of the poorest cities in the United States).
The minimum wage
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The minimum wage is the lowest legally permissible pay rate that a firm can provide its employees. Importantly, the minimum wage is determined by elected officials within a federal, state, or municipal government, rather than by a calculation of the subsistence level for a certain location or household size.
“When employers ask, ‘How much must I pay?'” Glasmeier stated this. “That is the bare minimum.”
During the Great Depression, when employment were scarce and employees lacked leverage, the United States established its first federal minimum wage of $0.25 in 1938.
The federal minimum wage, which was last increased in 2009, is currently $7.25 per hour. According to the left-leaning Economic Policy Institute, the federal minimum wage fell to its lowest level since 1956 last summer when adjusted for inflation.
Thirty states have raised their minimum wage above the federally guaranteed standard, including 23 states that implemented a price increase earlier this year. Washington has the highest minimum wage in the country, at $15.74 per hour.
Furthermore, from San Diego, California, to Portland, Maine, 27 towns and counties hiked their minimum wage at the start of this year. SeaTac, Washington, the city with the highest minimum wage, increased its base pay to $19.06.
The state-wide push for minimum wage increases accelerated a decade ago, when fast food workers began the Fight for $15 campaign, intending to boost wages and unionise the fast food industry.
A living wage
Image via By J. Douglas Hoyes, CA, LIT
A living wage is a pay rate that allows a worker or household to meet its fundamental necessities, such as housing, food, health care, and transportation.
Unlike the poverty line, which extrapolates a national baseline subsistence based on food costs, a livable wage is often derived from a more comprehensive calculation that takes into consideration additional expenses as well as regional cost-of-living disparities.
According to Allen, a living wage frequently exceeds a poverty income because it takes a broader view of household spending, including the need for reserves in the event of a financial emergency.
“It considers a broader group of expenditures that they believe are bare requirements,” he explained. “It includes enough so that the household can save something.”
There is no single, definitive definition of a living wage. Glasmeier’s Living Wage Calculator at the Massachusetts Institute of Technology is a popular example.
The calculator first asks users to choose their location, such as a city or metro area, so that the metric can account for specific regional expenses. The measure also provides a variety of data related to the number of adults and children in a given home.
In New York City, for example, the living wage for a household with one adult and no children is around $22.70. In Montana, a livable wage for the same household is around $16.30.
Glasmeier believes that living-wage measurements help Americans realise how much money it needs to afford basic essentials.
“As a nation, we are only as good as our people,” Glasmeier added. “This information should reflect what is needed, because else it is arbitrary – and there are always losers.”
How much money do you need to live in the United States?
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The minimum wage is the legal minimum pay that is required to maintain employees above the poverty line in their location. However, the minimum salary is simply insufficient to cover one’s living expenses. It is also insufficient to cover medical, auto, renter’s, and homeowner’s insurance.
Minimum Wage vs. Living Wage:
The living wage is frequently mistaken with the national minimum wage. In reality, the names are frequently used interchangeably. The minimum wage was established by the United States Congress in order to ensure a living income.
The minimum wage is mandated by legislation, whereas the living wage is decided by the average cost of living. The amount required to provide a living wage is determined by what is included in the computation. Legislators must consider the requirements of both corporations and workers when determining the minimum wage. They must also evaluate the overall impact on the economy.
In 2021, the average health insurance premium was $7,739 for single coverage and $22,221 for family coverage. 4 People on the minimum salary are unable to purchase health insurance. They have little choice except to rely on Obamacare subsidies or free health clinics. Many people want the minimum wage raised for these reasons.
Cities with the Lowest and Highest Prices:
Even those earning the minimum wage and living over the poverty line aren’t earning enough to live on. Brownsville-Harlingen, Texas, for example, is the country’s cheapest metropolitan area. According to the MIT living wage calculator, a single individual must earn $12.76 per hour in order to afford to live there.
That includes the typical cost of accommodation, medical care, food, and transportation. If the national minimum wage isn’t a living pay even in the country’s poorest city, it’s not a living income everywhere.
New York City, on the other hand, is one of the most expensive metropolitan areas in the United States.
According to MIT’s calculator, the living wage in Manhattan for a single adult is $21.77 per hour. The calculation assumes annual housing costs of $19,980. It would be difficult to find a $1,665-per-month apartment in Manhattan. Even if you were earning a living wage, you’d need roommates.
Image via Daphne Clarance
The Consequences of Mandatory Wages:
The implementation of a national living wage would be difficult. The cost of living differs by city and region. Many towns and states have linked their minimum salaries to inflation in order to account for increases in the cost of living.
A government would have to issue an order requiring specified locations to pay specific wages. When the government becomes that detailed, the system devolves into a command economy, in which a central authority makes all economic choices. This limits the natural dynamics of a free market economy and steers a country in the opposite direction of liberty.
A similar issue would arise if a universal basic income were implemented. The government ensures that everyone receives a minimal income. The idea has gained traction as a means to compensate for job losses caused by technological developments.
Setting a minimum wage is a valid role for the government. Congress should raise the minimum wage on a yearly basis to keep up with inflation. While considering raising the minimum wage, policymakers should consider the amount of money needed to live, not just exist.
Only five states, as of January 1, 2022, did not have a state minimum wage and instead followed the federal minimum wage: Alabama, Louisiana, Mississippi, South Carolina, and Tennessee.
Wage Calculators for Living:
A living wage calculator calculates the hourly rate required to cover common basic costs in a specific locality. These expenses include food, health care, rent, transportation, childcare, and taxes. The cost estimates are based on government and non-profit surveys of such costs.
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The well-known Living Wage Calculator is available from the Massachusetts Institute of Technology. It was created in 2004 by the Institute and is updated in the first quarter of each year. The calculator displays the minimum pay, poverty wage, and living wage for each of the 50 states and the counties inside them. It also displays the compensation for various vocations in numerical order, from high to low.
The fundamental idea behind these calculators was to provide employees and businesses with a frame of reference for pay in the area in which they live and operate.
- At $14.49 per hour, Washington has the highest state minimum wage. SeaTac ($17.53 per hour) and Seattle ($17.27 per hour) have some of the highest local minimum wages in the country. The minimum wage in Washington, D.C. is somewhat higher than the minimum wage in Washington state, at $15.20 per hour.
In addition, voters in the District of Columbia approved a measure in the November 2022 election that will raise the minimum pay for tipped workers, which is presently set at $5.05, until it reaches the minimum wage for non-tipped workers by 2027.
According to the Economic Policy Institute, if the Raise the Wage Act had been implemented and the federal minimum wage had been raised to $15 by the end of 2024, nearly 40 million workers would have received an increase in income. Among those who would have benefited are:
- 23 million females.
- There are 11.2 million parents.
- There are 5.4 million single parents in the United States.
- 6 million adults over the age of 18.
- 8 million full-time employees.
- 4 million children’s parents.
“When people are shouting that a $15 minimum wage is such a radical concept, the radical thing about it is, quite honestly, how low it would actually be,” said Judy Conti, government affairs director at the National Employment Law Project, a worker advocacy organization.
President Joe Biden has proposed a $15-an-hour wage threshold. The programme, which would progressively boost the minimum wage through 2025, is intended to be attached to a $1.9 trillion pandemic relief package, according to House Democrats.