Entrepreneur Wants to Pay a “Living Wage”

Q: I’m starting a business and like the concept of paying workers a “living wage”. But, even though I’ve heard the term used, I’m not exactly sure what it means. Is there a national number like the minimum wage or the federal poverty line?

A: A living wage is supposed to afford the earner the cost of the most basic living necessities without need for government support or poverty programs. There are usually seven factors considered when calculating the cost of a decent standard of living: housing, food, childcare, transportation, healthcare, taxes, and other basic necessities.

But unlike the federal poverty line or the minimum hourly wage there is no national number for a living wage. In fact there is no hard and fast rule about how to determine the particular amount per hour required to meet these needs. Generally, a living wage ranges from 100% to 130% above the federal poverty line, while taking into account the actual costs in a specific geographic area. For instance, if a living wage in rural Louisiana is around $9.33, in Washington, DC it would be closer to $15.

Now, for the purpose of calculating a living wage, the federal minimum wage is irrelevant. Why? Because it’s not connected to government measures of poverty, or inflation. Because of this detachment from inflation, the real value of the minimum wage has steadily declined.

For example, in 1968 the minimum wage was +17% above the poverty threshold, in 1998 it was minus -20%, and in 2012 it was minus -35% of that same threshold. Those numbers are hard to believe. Do you see why the minimum wage has become irrelevant?

Lastly, it’s impossible to research this topic and not come across the controversy of whether raising low wages hurts the economy and increases unemployment or whether it will act as a stimulus and improve the economy. History has sided with the latter. In over a hundred municipalities that have instituted a living wage, the feared detrimental effects on business and unemployment didn’t materialize.

Some people see this as a moral/values issue, so kudos to you for wanting to learn more. To figure out the living wage for your area try MIT’s wage calculator www.livingwage.mit.edu

Source: www.livingwageaction.org