How much money does it take to live a decent life? To be fed, receive medical care, have a place to sleep after work and meet all the other needs that we associate with a basic quality of life? This idea, that there’s a certain amount of money necessary to meet your basic needs, is called a “living wage.”
What Is A Living Wage?
Living wages aren’t the same as minimum wages, which are set by law, either state or federal. Right now, the “living wage” is more of an abstract concept, although around 140 cities have seen fit to make living wages the law, first defining what it costs to live a decent life and then passing ordinances to make that the local minimum wage.
While you’d assume that minimum wages would be based on how much workers need to make to live decent lives, that’s only one part of the equation. Lawmakers are also thinking about what impact the minimum wage will have on businesses and hiring.
No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.” – President Franklin Delano Roosevelt, 1933
Wages are always a balancing act between businesses that want to make money and workers who should be “tolerably well fed, clothed and lodged,” as economic philosopher Adam Smith put it in his 1776 treatise The Wealth of Nations. What constitutes a living wage is also up for debate, changing from place to place and depending fundamentally on how you define a basic quality of life. Another aspect of the idea is that paying workers a living wage reduces their dependence on government assistance, creating a wider social benefit.
What Minimum Wages Miss
But regardless of those considerations, most minimum wages, including the federal one of $7.25 per hour, don’t cut it as living wages. One way to look at this is by comparing how minimum wages and living wages affect poverty. In 2008, a paper published in the Journal of Labor Research found that communities with living wage ordinances saw a “modest” reduction in poverty rates, but state minimum wages had no effect on poverty.
The Problem With “Poverty”
Poverty, though, isn’t necessarily a good way of looking at this issue.
For one, the federal poverty threshold doesn’t take geographic variations into account. The poverty line for a person in Birmingham, Alabama is $11,770. It’s the same for someone living in Washington, D.C., even though housing in D.C. costs 210% more than it does in Birmingham, according to CNN’s cost of living calculator.
Second, the poverty threshold is based only on food costs. The US Census Bureau takes how much it would have cost to meet an individual’s basic nutritional needs in 1963, adjusts that amount for inflation and then multiplies it by 3. 3 was chosen because at the time, groceries accounted for about one-third of a family’s expenses. That seems kind of arbitrary, when you consider all the other costs it takes to maintain a decent life.
The government’s official definition of poverty doesn’t account for taxes, clothing, shelter, utilities or medical care; it just lumps those additional expenses together by multiplying the cost of feeding yourself by 3. The Census Bureau recognized the shortcomings of its official poverty threshold in 2010, and started releasing a Supplemental Poverty Measure. This number varies by location and considers more than just food. Unfortunately, it’s almost unknown outside of public policy circles, and most lawmakers still rely on the official poverty threshold to diagnose economic problems.
Accounting For Every Cost
Advocates of a living wage try to take all of these nuances into account. The Economic Policy Institute has a Family Budget Calculator that tries to get at this idea, calculating specific living wages for most population centers in America.
Like the concept of a living wage, the Institute’s Calculator tries to preserve a decent standard of living. That’s why instead of using the average apartment rent in Philadelphia, it takes estimates from the Department of Housing & Urban Development that account for structural security, sanitation and reasonable amenities. It accounts for the cost of owning a car, and notes that having a car serviced in Salt Lake City costs a different amount than it does in Toledo. Health insurance, clothes, supplies for the house – it’s all in there.
Minimum Wage Vs. Living Wage: Philadelphia
The living wage for an individual in Philadelphia is $33,765 per year, as calculated by the Economic Policy Institute. MIT has its own living wage estimator, which says $24,109 is enough for an individual in Philly to live a decent life. Those numbers are very different, which just highlights how dependent any discussion of a living wage will be on how you define “living.”
By either measure, the minimum wage doesn’t match up. Pennsylvania’s minimum wage is $7.25 per hour, same as the federal rate. Working full-time in Philadelphia, a minimum wage employee makes $15,080 every year. That’s 55% less money than the Economic Policy Institute thinks is a living wage, and 37% less than MIT’s estimate.
Don’t Confuse “Subsisting” With “Living”
Economists refer to “subsistence” when they’re talking about an even lower standard: the amount of money you need to sustain basic physical functioning.
On a biological level, we all need to consume a certain amount of calories to stay alive. We also need things like drinking water and access to natural resources for a minimal level of protection from the elements. That bare minimum necessary for survival is called “subsistence,” and at the beginning of human history, everyone lived in so-called subsistence economies. Humans hunted, gathered and, in some parts of the world, grew just enough food to keep themselves alive.
Obviously, most societies on Earth have surpassed the subsistence level. Most of us don’t grow our own food anymore. Instead, we cook vegetables that were grown somewhere else, make a little money and buy a cellphone. In one way or another, the vast majority of people in contemporary societies serve as “middle-people,” standing between the field that produces grain and the mouths that consume it.
Modern Subsistence Economies
The world is still home to subsistence economies. In 1990 ethnographic study Oil Age Eskimos, Joseph Jorgensen described small indigenous populations on the western coast of Alaska who continue to rely almost solely on natural resources, seal pods and caribou uncontrolled by humans, to exist. There’s no developed market, in which people could trade a form of currency for goods. Instead, the person who produces a product, say a fisher who catches salmon, consumes that product herself.
Perhaps more importantly, labor isn’t a commodity that can be bought and sold. It would be exceedingly rare in Unalakleet, a village of 688 residents outside Nome, Alaska, to hire someone else to catch your fish for you. Many communities in developing nations still operate like this, too, mainly out of sheer need.
In subsistence economies, there’s very little economic surplus. You’re not selling products at a profit, for more value than you put into making them. That means wealth isn’t something stored in the bank; it’s however much control you can exert over the natural resources around you. It’s not the resale value of your home, but how warm it keeps you during the winter. Some ideas of living wage, on the other hand, even make room for retirement savings.