As a result of inflation and as the cost of goods and services rises across the nation, where is the extra money going? Are workers seeing a comparable increase in pay as a result? Sadly, this is a matter of debate, with some in government trying to instate a higher minimum wage while others push back against this policy. Although the original goal of the minimum wage was to ensure a fair living wage, the minimum wage is far from a fair living wage in most areas today. And that’s assuming the wage earner has no dependents. Add in just one child, and it wouldn’t be a living wage in any state. Let’s explore the difference between the minimum wage vs. a living wage, as well as why this is such a timely topic.
The minimum wage was instituted in 1938 as part of the Fair Labor Standards Act, intended to be a living wage. The minimum wage is set by the federal government (some state and city governments have set their own minimums as well) and reflects the lowest possible wage that can be paid by an employer to their employees. This amount is determined to keep the employee above the federal poverty level. Over time, this number has been gradually increased to reflect inflation (although how well it has reflected the rise in inflation is questionable, as we’ll discuss in more detail below).
A living wage is the amount of wages someone needs to be able to maintain a decent lifestyle, factoring in their individual needs and expenses. The living wage takes into account different factors that can affect the cost of living in the person's life, including family size, lodging expenses, and healthcare expenses, all expenses pertaining to the area they live in (high cost of living vs. low cost of living). It also takes into account current economic factors and inflation. For example, an acceptable living wage for a single person living in a low cost of living area would not be the same as a living wage for a person supporting several kids and living in a high cost of living area.
Minimum wage vs. living wage in the past vs. now
In 1938 the U.S. was coming out of the Great Depression and changes were needed in order to help strengthen the economy. When the minimum wage was first instituted that year, it was meant to be a living wage. While it has always fallen short of being a truly fair living wage, it was closer to being one in the past.
The current federal minimum wage in the U.S. is set at $7.25 an hour. Think about recent price hikes, gas price increases, food price increases, and so on. The cost of buying a house has increased, the cost of buying a car has increased, health insurance costs have risen as well. We’re definitely seeing a big increase in the cost of living, especially in recent years. Despite all this, the federal minimum wage has languished at the same amount it has been since 2009!
As explained above, different states have set their own minimum wage requirements as well. However, even where these minimums are quite a bit higher than the federal minimum, every state falls short of their minimum wage reflecting a true living wage for one person, let alone someone providing for a household.
The current debate
So why is this such an important issue to understand right now? Because of the discrepancies discussed above, many young adults and new families these days have trouble making ends meet, let alone paying for education, paying off student loans, buying a house, obtaining insurance, or being able to set aside savings or a retirement fund. The minimum wage simply has not kept up with inflation, nor has it ever reflected a decent living wage.
It also has caused a divide between generations. Young adults of the millennial and gen Z generations are often faced with unsympathetic relatives who don’t understand why they can’t just save up and buy a house or why they are struggling with expenses. And that’s often because the older generations’ minimum wage better matched up with the living wage of the time. This has also led to the damaging stereotype of laziness whereas many find themselves working hard yet not seeing the just fruits of their labor.
Whether the minimum wage goes up in the near future remains to be seen, but something needs to change for those working minimum wage jobs. Unfortunately, for now we’re stuck in a world where the minimum wage vs. living wage divide keeps increasing, and the rich keep on getting richer while the poor keep on getting poorer.
*Curious about the living wage in your area? Check out MIT’s Living Wage Calculator.