While the concept of a living wage has become an issue of increasing importance to both employers and employees in recent years, the number of workers actually earning a living wage has been steadily decreasing at the same time – though that decrease has not been experienced across industries and/or geographies in equal measure.
It may once have been easy to confuse minimum wage standards with living wage standards. In fact, the federal minimum wage was initially devised in part to ensure a living wage, those standards long ago diverged with cost of living significantly outpacing minimum wage increases on balance since the 1950s.
That said, the chasm between minimum wage and living wage seems to have become all the more stark in recent years, especially during the pandemic recovery when workers paid well above minimum wage found themselves unable to keep up as cost of living climbed faster than rising wages despite (and because of?) the historically labor-friendly labor market.Â
Inflation has largely been under control for the better part of a year now, with the last 9 months holding steady below 4% annualized, but cost of living remains high and the minimum wage remains exactly where it has been for the last 15 years – 7 dollars and 25 cents an hour.
That $7.25 an hour in 2009 would be worth $10.58 today accounting for inflation, etc. Meanwhile, as of 2022, the average living wage in the US according to MIT was just over $25 dollars an hour at the time, or $27.53 in todayâs dollars.Â
With more workers than ever failing to secure a living wage, the repercussions of this situation are likely to be felt far beyond those who are personally affected, though not all industries are contributing equally to the issue nor are all cities/states/regions responding passively to the growing problem.
The minimum wage is a hotly debated topic in the United States. With the cost of living rising faster than wages in many areas, there is disagreement over whether the federal minimum wage of $7.25 per hour and state minimum wages are enough for workers to afford basic living expenses. Understanding the differences between minimum wage, poverty wage, and living wage helps highlight why this issue matters to workers and employers alike.
What is the Minimum Wage?
The minimum wage is the lowest hourly rate that employers can legally pay employees. The federal minimum wage is currently $7.25 per hour and was last raised in 2009. However, states and localities can set their own higher minimum wages. As of 2023, 30 states and many cities have minimum wages above the federal level, with Washington state having the highest statewide minimum at $15.74 per hour.
Minimum wage rates are set by legislation, not directly tied to any measure of costs or living expenses. Proponents argue that raising the minimum wage boosts incomes for lower paid workers and helps address rising inequality. Critics counter that it could lead to job losses or higher prices if businesses’ labor costs rise. The true impacts are complex and debated by economists.
What is a Poverty Wage?
A poverty wage refers to an hourly pay rate that would leave a full-time worker with annual earnings below the poverty line. The federal poverty line is an income threshold set by the Department of Health and Human Services that determines eligibility for government benefits. It is based on food costs but does not vary by location.
In 2022, the poverty line for a single person was $13,590 annually, equivalent to $6.54 per hour for full-time work. A poverty wage means a worker supporting themselves alone would live in officially defined poverty despite working full time. Around 10-12% of American workers earn at or below the poverty wage.
What is a Living Wage?
Whereas poverty wages refer to the government’s poverty line, living wages are base pay rates designed so that workers can afford basic living costs like housing and healthcare. Living wages take a broader view of expenses than just food Also unlike the single national poverty line, living wages are location-specific based on local costs
Living wage estimates vary but are often calculated by experts or nonprofit organizations based on typical area rents childcare costs, food prices, healthcare transportation and other basics. Living wages tend to be higher than poverty level wages. MIT has a living wage calculator that shows the living wage for a single adult ranges from around $15 to $22 per hour in different parts of the country.
The Gap Between Minimum Wage and Living Wage
Looking at minimum wages versus location-based living wages reveals a significant gap in many states. According to an analysis by Statista, in 23 states the minimum wage falls short of a typical living wage by over $8 per hour. States like Georgia and Utah using the $7.25 federal minimum fare the worst, with living wage gaps of over $10.
However, even states with higher minimum wages can still fall short of living wages, especially in metro areas. For example, while Hawaii has the highest statewide minimum at $12 per hour, its living wage gap still exceeds $10 due to Honolulu’s high costs. New York and Florida have gaps of around $7 despite minimum wages of $15 and $11. That shows that some increases have not kept pace with rising living expenses.
On the other hand, a few states like Vermont do have minimum wages at or above living wage estimates statewide. This demonstrates that while raising minimum wages does not guarantee closing the living wage gap, it can help shrink it in some instances.
Why Do Living Wage Gaps Matter?
Living wage gaps essentially measure the difference between minimum legal pay and pay that covers typical basic costs in an area. Large living wage gaps indicate many workers likely cannot afford normal living expenses without relying on public assistance, getting multiple jobs, or cutting back on fundamentals.
This matters for a few reasons:
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Financial Hardship: Workers in jobs paying far below the living wage face difficult tradeoffs and financial stress trying to pay for basics like rent, food, and medication. This can negatively impact health and wellbeing.
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Reliance on Government Aid: When wages fall far short of living costs, many working families have to rely on food stamps, Medicaid, housing subsidies, and other public assistance. This amounts to taxpayer dollars subsidizing very low wages at many large companies.
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Reduced Spending: Families struggling to afford the basics cut back on other spending, reducing demand and sales for local businesses. Lower wage workers also have little discretionary income to stimulate economic growth.
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Inequality: A large and growing living wage gap means prosperity is concentrated at the top while lower-paid workers see real wages decline. This fuels economic inequality and its negative societal impacts.
Arguments For and Against Minimum Wage Increases
With living wage gaps remaining high in many states and cities, the debate continues around increasing minimum wages to help close the gap.
Arguments for increases include:
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Raising pay would reduce hardship and reliance on government aid by better aligning wages with costs. This would improve conditions for tens of millions of workers.
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Putting more money in the hands of lower-income workers could boost consumer spending and economic growth as they spend more at local businesses.
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A higher national floor could help address rising inequality and falling real wages for less educated workers.
Opposing arguments contend that:
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Rapid minimum wage hikes could cause low margin businesses to cut staff or hours to reduce costs, hurting the same workers meant to be helped.
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Companies may offset higher labor costs by increasing prices, passing the burden to consumers instead of increasing real pay.
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A uniform national increase ignores local economic conditions and cost of living differences better addressed by state and city policies.
There are good faith arguments on both sides of this issue. The right approach likely combines targeted minimum wage increases with policies like expanded Earned Income Tax Credit that specifically help low-income families bridge the living wage gap, while minimizing risks of job loss or higher prices.
The cost of living problem extends beyond just wages, so broader policy solutions around housing, education, healthcare, and taxation are also needed to improve living standards for working Americans. But for lower paid workers struggling to keep up with rising rents and food costs, the debate around minimum wage versus living wage matters tremendously.
Industries With the Highest Living Wages
According to data from Revelio Labs, more than one third of workers (36%) employed by the top one thousand companies in the US are paid less than a living wage, defined here as a wage sufficient for two full-time workers to support themselves as well as two dependents. Even worse, nearly 1 out of 5 of those employees (19.2%) does not make enough money to meet basic needs.Â
As the following graphic illustrates, among the 10 largest industries in terms of total number of employees (which collectively account for 10% of the US workforce), the industries involving technology development dominate the upper end of the scale, with the software, computer services, technology hardware, and pharmaceuticals/biotech industries all paying more than 80% of their employees at or above the living wage threshold.
On the other extreme, both the restaurant and leisure as well as the retail industries pay living wages to fewer than 40% of their employees, while the commercial support services, medical equipment, banking, and industrial goods industries all pay living wages to about 70% to 80% of their employees.Â
Even when taking into account geographic variance in cost of living, the big picture doesnât change much, although the following graphic seems to indicate a somewhat less favorable view of the tech industryâs propensity toward paying living wages when factoring for local cost of living, with the total percentage of employees that are paid a living wage in the software and pharmaceuticals/biotech industries dropping by between 3% and 4%, respectively.
Mostly, however, the information best illustrated by this graphic may simply be that industries like tech and media tend to gravitate toward areas with a relatively higher cost of living while the more industrial industries tend to be located in areas with a relatively lower cost of living compared to the national average.
Minimum Wage Across States
According to the National Conference of State Legislatures, Washington DC currently has the highest minimum wage among âstatesâ at $17 per hour, followed by Washington state at $16.26, then California and New York at $16 each.Â
Beyond the 5 states that have no internally legislated minimum wage and are therefore subject only to the federal minimum wage standard (Alabama, Louisiana, Mississippi, South Carolina, Tennessee), there are 15 states that have set their minimum wage to the current federal level of $7.25 per hour – Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, New Hampshire, North Carolina, North Dakota, Oklahoma, Pennsylvania, Texas, Utah, Wisconsin, and Wyoming.Â
Average minimum wage across the remaining states is about $13 per hour.
‘Real disconnect’ between cost of living and workers’ paychecks | Meet the Press Reports
Is the minimum wage enough to pay for living expenses?
According to an analysis from the Massachusetts Institute of Technology, the minimum wage does not suffice to pay for a typical set of living expenses in any state of the United States. Hawaii, Georgia and Utah, where the living wage gap exceeded $10 per hour, fared the worst.
Is the cost of living higher than minimum wage?
While minimum wage amounts have continued to increase among many states, many argue that the cost of living is still higher than minimum wage provides, especially for those supporting a family. Inflation can also impact cost of living, which can outpace wages.
How do you compare living costs to the minimum wage?
To compare the cost of living in every state and Washington, D.C. to the minimum wage, Stacker consulted MIT’s Living Wage Calculator. The tool aggregates child care, food, housing, and other living costs into a living wage dependent upon family composition.
How much would a living wage cost a full-time worker?
That’s equivalent to about $13.34 per hour for a full-time worker. A living wage must at least be greater than the poverty level. A worker making the minimum wage of $7.25 per hour would be below the poverty level. A household of four would need two people working minimum wage jobs to even hope to reach a living wage.
