Why the Minimum Wage Needs to be a Living Wage
What is a Living Wage, Anyway?
There are several different ways to define the different wage levels. To avoid arguments, and for simplicity, we are going to use very basic definitions that do not use specific numbers, but work on a relative basis.
The poverty level is based on how much it costs to meets a household’s basic biological needs – food, clothing, shelter, and basic utilities. This was originally calculated in the early 1960’s as three times what the average family spent on food, and has been updated annually based on inflation. There are 48 different poverty thresholds, based on family size and composition (number of adults and children). Families living at (or below) the poverty level generally rely on government assistance extensively, as meeting just the basic needs is not sufficient to operate in modern society.
A living wage is based on how much it costs to meet a household’s expected normal needs. In addition to food, clothing, and shelter, this includes all utilities, transportation, insurance, healthcare, childcare, and related expenses. In other words, everything you would need to cover in day-to-day living with no extras, and without requiring any government assistance.
A minimum wage is the lowest amount of money a company can legally pay an employee for a particular position.
The History of the Minimum Wage
Working your first job is almost a rite of passage for most American teenagers. Earning minimum wage in that job is also a common rite of passage as well. For most teenagers, living at home and working part-time for gas or spending money, minimum wage usually works fine – and many people believe this is what minimum wage is intended to be.
Looking back through history, we find a very different story. The Fair Labor Standards Act of 1938 (FLSA), which was part of President Franklin D. Roosevelt’s New Deal, had three landmark parts. It set the first federal minimum wage at 25 cents per hour, introduced a 44-hour regular work week with overtime after that, and eliminated oppressive child labor.
When we read the text of the original FLSA law, the “minimum wage” was set by what was needed for the “minimum standard of living necessary for health, efficiency, and general well-being of workers”. In other words, the original “minimum wage” was actually a “living wage” in the beginning.
The federal minimum wage has been changed 22 times, most recently in 2009, when it was set to $7.25 per hour.
What’s Wrong with the Minimum Wage?
Realistically, there is nothing wrong with a minimum wage that is also a living wage, as it was originally intended. Unfortunately, that is not what we find with the current minimum wage.
As of the time of this writing, the Federal Poverty Level (FPL) is $31,200. Since the federal minimum wage is $7.25, a family of two adults with two children, where both adults are working full time for minimum wage would earn $30,160 before taxes – or slightly less than the poverty level.
For comparison, the average living wage for that same family (based on 2022 data) is $104,077 or 6.9 full-time minimum wage jobs.
There are 30 states and at least 42 localities that have passed minimum wage standards higher than the federal minimum wage. Even with 20 states still allowing hourly wages as low as the federal minimum wage, as of 2022 only 1.3% of hourly workers were earning at or below the federal minimum wage. However, more than 20% of all workers were still earning less than $15 per hour.
Even at $15 per hour, this family of four would still need to work 3.34 full-time jobs to earn a living wage.
Subsidizing Businesses
Another way to think about any salary between minimum wage and a living wage is as a subsidy for the business. Although this sounds dramatic or an exaggeration, this is the effective reality of the situation.
Because families earning less than a living wage are not necessarily able to cover all their needs, any assistance they get from various support programs due to their lower income is covering for what they are not receiving from their employer.
Why Does Minimum Wage Matter?
Even though so few people actually earn the minimum wage rate, it serves as an anchor that a lot of other wages are based on. If the minimum wage is raised, those other wages will also be raised, improving the situation of all related workers.
If the minimum wage is raised to the living wage level again, then all wages will be living wages, and the need for government support programs will be greatly reduced – they will be able to focus on those that truly need their help because they are unable to work full-time, or need additional assistance due to disability or disfunctional situations.
In summary, although there are disadvantages and side effects we did not have time to discuss here, there are a lot more advantages to making the minimum wage a living wage again, and ensuring it stays that way.
