What’s the difference between the United States’ minimum wage vs. living wage? The “living wage” was introduced as an unenforced standard for employers in the United Kingdom. It will be raised in the UK starting this April, and is often referred to in political discussions and elsewhere suggesting that America needs to set its own standard for what is considered the nation’s “living wage”.
Minimum wage is not a living wage. If this were true, some reports estimate that the minimum wage would need to equal at least twice the rate per hour for an average adult employee working a 40 hour week to cover the basic cost of living in America across the board.
An October 2015 report Pay Up! by the Job Gap found that the national average rate of pay required to be considered a “living wage” in America is $16.87 per hour. This means that wages in a number of states sometimes equal half the estimated cost it takes to support just one individual adult after the minimum amount needed for food, housing, and regular living expenses are satisfied.
What is the definition of minimum wage vs. living wage?
The minimum wage is determined using economics and other factors by state, and the federal minimum wage is set at $7.25 per hour for regular employees and $2.13 per hour for employees who make tips and for whom the employer takes a tip credit (as of February 24, 2016). There are also a couple exceptions for employees of small business that make less than $500,000 per year and employees who are students of high schools and colleges and whose employers have been issued a minimum wage waiver by the U. S. Department of Labor. Many employees are not covered by the federal minimum wage at all and may be covered by applicable state law.
The federal minimum wage has not been raised since The Fair Minimum Wage Act of 2007. State minimum wages in many states have been raised above this level.
By contrast, the living wage is determined as the amount an individual needs to pay for the basic costs of living. Although the minimum wage is the only regulated standard that measures the “cost of living index” with wages by state, it sometimes fails to make up for the realistic cost an average adult worker needs to survive in the year 2016. In fact, universities like Berkeley, MIT, and other research institutions have conducted extensive reports on the information and gone to great lengths to present facts and effects of low wages (not just for the employee but all Americans) as well as what is considered the “wage gap” between the minimum wage and living wage.
A study on low wages by UC Berkeley reports that fixing the standard for minimum wage at such a low rate costs the United States taxpayers $152.8 billion in assistance programs funded at the state and federal level which are designed to make up for deficits that result from the lack of wage increase in proportion with the rapidly increasing cost of living. In fact, 73 percent of people who apply for such programs are working families.
This is the true hidden cost of low wage work in America, and it affects everyone, not just the low wage worker.