What is a real living wage and how does it compare to the minimum wage?
In the United States, the minimum wage for any given state or territory is a fixed dollar amount that employers must pay their workers. However, there are arguments around what a living wage is and if it’s different than the minimum wage.
The living wage is also known as the “minimum income.” Living wages are calculated based on the cost of living in a particular location. For example, the cost of housing, groceries, transportation, and other necessities may be higher in urban areas than rural ones.
In addition to these variations based on geography, there are also differences between single adults, married couples with children, people with disabilities, and other circumstances that may affect how much money they need to meet their monthly expenses.
Read on to learn more about what a real living wage is and how it compares to the minimum wage.
What is the current federal minimum wage?
The minimum wage is the lowest amount an employer can legally pay an employee. In the U.S., the federal minimum wage is $7.25 per hour. State and local governments can mandate higher minimum wages, which they often do in response to high-cost-of-living areas.
The federal minimum wage was first established in 1938 under President Franklin Delano Roosevelt. It was set at $0.25 per hour and hasn’t been raised since 2009.
Employees who work in certain types of businesses, like restaurants, are often paid slightly more than the minimum wage, which is known as a sub-minimum wage. This applies to people who receive tips and who spend at least two-thirds of their work time doing customer service-related duties, such as waiters and bartenders.
How is a real living wage determined?
There are a number of organizations around the globe that determine the cost of living in different cities and regions. The cost of living can vary widely in large cities, compared to rural areas. For example, in 2018 the cost of living in New York City was $2,000 a month, whereas in Boise, Idaho, it was just $800.
Real living wage organizations calculate how much money a person needs in order to make ends meet in a particular location. The amount is usually calculated based on the number of people in a household, their ages, and other factors.
For example, a single adult in Denver should earn at least $18.07 an hour to meet his or her basic expenses. That’s more than double the current federal minimum wage.
How does the real living wage differ from the minimum wage?
The minimum wage is a legal requirement that applies to all workers across the country. The real living wage, on the other hand, is based on the cost of living in a particular area.
The minimum wage is often criticized for being too low to meet the cost of living in many cities, let alone provide for a family. In fact, many people who work full-time jobs earn an amount that falls below the poverty line.
The real living wage is meant to address this issue. It is set in a way that considers the cost of housing, food, childcare, and other necessities in a particular area. In some cases, the real living wage may be higher than the minimum wage.
The minimum wage has been criticized for having little connection to the real cost of living. In other words, it doesn’t account for the price of goods or what people need to earn in order to survive in their communities.
Benefits of a Real Living Wage
- Reduces income inequality - Raising the minimum wage is one way to reduce inequality by increasing the pay of those on the lower end of the income spectrum.
- Better business outcomes - For businesses, paying a real living wage is a way to attract skilled employees and reduce employee turnover. This can help businesses achieve better outcomes, such as improved productivity and customer satisfaction.
- Better quality of life - The real living wage is meant to provide a livable wage for everyone, regardless of their profession.
- Boost to local economy - When people earn more, they spend more. This can help boost the local economy, which can result in more job creation.
Drawbacks of a Real Living Wage
- Decreased demand for low-skilled work - If the real living wage becomes mandatory, it could reduce the demand for low-skilled work, such as in fast-food restaurants or hotels.
- Increased cost of goods - A higher real living wage can lead to an increase in the cost of goods and services. This may affect the purchasing power of consumers, especially those on the lower end of the income spectrum.
- Decreased competitiveness - In industries like agriculture and food services, which already face high costs, a higher real living wage could make it harder for businesses to compete against other nations.
- Increased taxes - To make up for the higher cost of living, governments might have to increase taxes. This could affect low-income earners who pay taxes.
The real living wage is a useful concept to consider as we evaluate how much money people need to make ends meet in their communities. It is important to note that the real living wage is not a legal requirement, unlike the minimum wage. Employers are not obligated to pay employees a particular amount.
Instead, the real living wage acts as a guide to help employers determine how much they can afford to pay employees. It can also help employees decide if an employer’s offer is fair or if they should look for work elsewhere.
When calculating the real living wage, organizations consider the cost of living in a particular area. This includes housing, food, childcare, transportation, and other necessities. The real living wage is significantly higher than the federal minimum wage, which is currently $7.25 per hour.
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