Living wage vs. minimum wage

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Living wage vs. minimum wage
Minimum wage generally applies to unskilled or semi-skilled labourers. (hardhat worker image by David Sexton from Fotolia.com)

Many U.S. cities have adopted popular but controversial living wage ordinances which require certain companies and industries who receive government contracts or tax incentives to pay wages that are more than the federal or state mandated minimum wage. It is useful to understand the difference between these types of wages.

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Living Wage

According to Merriam Webster's Online Dictionary, living wage is defined as a wage sufficient to provide the necessities and comforts essential to an acceptable standard of living. With an ideal living wage, an individual working 40 hours per week (2,080 hours per year) would be able to afford food, child care, medical, housing, transportation and other expenses for his family if he is the sole provider. According to Neumark and Adams, living wage ordinances adopted by cities typically require those businesses who have a contract with the city or who receive assistance from the city to pay their workers a living wage. A living wage calculator to estimate the cost of living in a particular community or region in the U.S. is available from Penn State University (see Resources).

Minimum Wage

According to Merriam Webster's Online Dictionary, minimum wage is defined as a wage fixed by legal authority or by contract as the least that may be paid either to employed persons generally or to a particular category of employed persons. In the U.S., minimum wages are set both nationally and statewide. Effective July 24, 2009, the U.S. federal minimum wage was set at £4.70 per hour with an amendment to the Fair Labor Standards Act (FLSA). All U.S. states and territories except Alabama, Louisiana, Mississippi, Tennessee and South Carolina have minimum wage laws (see Resources).

Certain occupations such as agricultural and service workers are usually exempt from minimum wage requirements. Also, workers with disabilities can be paid special minimum wages known as commensurate wage rates which are less than the FLSA minimum wage. These wages are based on the disabled worker's individual productivity in comparison to non-disabled experienced workers in the geographic area from which the labour force is drawn.

Distinction

According to Fairchild, living wage laws differ fundamentally from minimum wage laws in that they cover only a small subset of workers in a local jurisdiction whereas the latter cover almost all workers. Furthermore, a living wage is usually linked to the federal poverty level whereas minimum wage is not.

Living Wage Effects

According to Neumark and Adams, living wage ordinances can increase the wages of low-income workers and reduce urban poverty. However, these ordinances also have strong negative effects on the employment of low-wage workers.

Minimum Wage Effects

According to Abbott and Fairchild, minimum wages can increase the standard of living for the poor, motivate people to work harder, improve the economy by increasing the spending power of lower income people, and decrease government spending on social welfare programs like food stamps, medical insurance and subsidised housing. However, they can also hinder firms from being efficient during economic downturns, hurt small businesses, lead to inflation and entice poor teenagers to enter the workforce at the expense of their education.

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