The Minimum Wage needs an update, but what constitutes a "Living Wage?" Well ...
What do you consider "Living?"
Minimum Wage
Under the Fair Labor and Standards Act (FLSA), the Federal Government lists the minimum amount an employer in the United States can pay their employees. This is our Federal Minimum Wage. Today, it's $7.25 per hour.
It's been $7.25 since 2009, more than 12 years ago.
In 2009, the Black Eyed Peas "Boom Boom Pow'ed" their way to the top of the pop charts. Dan Brown inspired us to look for "The Lost Symbol". Harry Potter and the Twilight kids made big money at the box office. And the US Economy had just taken a nose dive.
A lot has happened since then.
Of note: The cost of living has increased 20%. Across the US, essentials like rent have increased upwards of 30%.
The Economic Policy Institute (EPI) reports that the "real value" for the Federal Minimum Wage has dropped 17% since 2009 and 31% since 1968. This means that today's minimum wage workers have $6,800 less, per year, to spend on food, rent, transportation, and other essentials than they would have had 50 years ago.
This decrease in wage value comes despite the fact that American worker productivity has doubled in the last 50 years. If Minimum Wage matched productivity, it would be $24.18 an hour. Earlier this year, Congress furiously debated whether or not they would raise it to $15 an hour before deciding not to raise it at all.
But, in today's world, with prices rising quickly, would $15 be enough?
..... Well.... that depends.
Living Wage
Simply put: a living wage is the minimum amount needed to cover essential expenses.
Since "living" is not the same from one person to the next, a "living wage" for one person might not cut it for another. Many things can influence your unique cost of living.
- Do you live in an expensive city or a cheap town?
- Are you married or single? If you're married, do both of you work?
- Do you have kids?
...The list goes on.
The Massachusetts Institute of Technology (MIT) has developed a handy "living wage" calculator to help with this process. Type in your state or metro area and the calculator will show you how much you would need to earn in order to afford essentials like food, rent, transportation, and childcare.
Example: San Francisco Bay Area
I used to live in Oakland and was amazed by how quickly my paycheck disappeared. With this in mind, I used the Living Wage Calculator to discover what a living wage might be for the San Francisco Bay Area.
If you're single, without kids, $22.88/ hour would be enough to cover the basics. That's $47,587 annually, before taxes.
However, if you add a child into the equation, your living wage as a single parent jumps to $48.61/ hour. That's $101,109 annually, before taxes. Wow!
If you have 2 children as a single parent, the living wage climbs to a staggering $60.41/ hour, or $125,645 annually, before taxes. As it turns out, childcare in the Bay Area is really expensive, with costs rising 40% in the last 5 years.
It's enough to make your eyes water, especially when you consider that San Francisco's minimum wage is only $12/ hour. A federal minimum wage hike to $15/ hour wouldn't even be a drop in the bucket.
Of course, the living wage projections change if you're married, and the calculator breaks it down by "married, one spouse working" versus "married, both spouses working." Clearly, it helps to have a second employed adult around the house.
And, yes, the San Francisco Bay Area is legendary for it's high cost of living. Perhaps we should consider other places which don't regularly top lists for "most expensive places to live."
Sample: Living Wage Across the US
Not everyone can afford to live in San Francisco. And, as my family often points out to me, not everyone wants to live in such an expensive, crowded place.
Indeed, smaller cities are more affordable.
For example, in Twin Falls, Idaho, the Living Wage for an unmarried person without kids is $13.45/hour, roughly $28,000 annually, before taxes. That climbs to $26.28/ hour ($55,867/ annually) when you add a child to your family. The federal minimum wage is $7.25.
It may not be San Francisco, but the difference between a living wage and the current minimum wage still feels insurmountable.
That said, a wage hike to $15/ hour would make a difference in Twin Falls, Idaho. It would also make a difference in Indianapolis, Indiana. It would be meaningful in Atlanta, Georgia.
Why Wait for Congress?
Congress has temporarily given up the fight to raise the Federal Minimum Wage. It seems that, despite feeling like a livable wage for many Americans, $15/hour is still a controversial number. Unfortunately, it could be a while before we get there.
But who says we have to wait for Congress? Why can't companies meet the living wage challenge on their own, without a legal mandate?
Meet Dan Price, CEO of Gravity Payments in Seattle, Washington.
In 2015, Dan Price made headlines by establishing a minimum salary of $70,000 at his company. People freaked out. Is this real?! Will this work? ... Yes!
In the 6 years since this experiment began, Gravity Payments has seen:
- A 10x increase in employee first-time homeownership.
- A full 70% of employees paid down debt, with a third of staff becoming "debt free."
- And this new-found financial freedom has led to an employee baby-boom.
It sounds like a living wage has, predictably, been great for employees.
But what about the company?
It turns out, the living wage was also good for business. The company tripled its payment processing volume. Revenues rose every year (except 2020). And the nationwide labor shortage? Not an issue for Gravity Payments. It seems lots of people want to work for a company that promises a living wage. Since 2015, employee turnover has been cut in half and each new opening receives over 300 applicants.
And Gravity Payments is not the only one.
In 2019, tech giant PayPal began offering employees a living wage and revenues grew by billions of dollars. In late 2020, Chobani (yes, the yogurt company) also committed to paying a living wage as part of a larger commitment to monitor employee's financial health. While it's still too early to tell, I bet they have similarly positive results.
Caution Ahead
Many companies have made similar promises to raise the bar for workers' wages. But beware the fanfare for such bold proclamations. Not everyone who claims to be paying a "living wage" is actually doing so.
Ben and Jerry's made a commitment to paying its employees a "living wage" although this turns out to be partially true and dependent upon the cost of living in Vermont rather than adjustable by market. Starbucks, Trader Joes, Costco, and the gas station chain QuikTrip pay their employees well above the current minimum wage, although it's unclear if their starting wages - usually around $15/ hour - are enough to be considered a "living wage" in all markets.
But, even if it's imperfect, it's a good sign many are at least trying to pay their employees fairly.
Living on $15/hour would be tough, but it's better than living on $7.25.
Something is always better than nothing.
And, if enough companies voluntarily pay a living wage, perhaps the rest will be pressured to do the same.
What Next?
If you're a company considering paying a living wage, the experts suggest you start by asking your employees:
"What do YOU consider a living wage? What would "living" mean to you?"
The answer might surprise you. It will certainly point you in the right direction. Perhaps "living" means finding affordable childcare. Perhaps it means access to better medical care. Perhaps it means sending the kids to college or paying off student loans. Perhaps it means finally being able to take a vacation. Or perhaps "living" is simply not having to take an extra shift and being home for dinner each night.
Second, the experts suggest advocating broadly for worker wage reform. If you pay your workers fairly, be loud about it. Share your challenges but also your path to success. Encourage others to do the same. Join forces with those who are also committed to a living wage and get loud together. Show others that there's momentum behind improving worker pay. Pressure Congress to finally raise the minimum wage.
And don't just stop at your American workforce. Examine wages in your entire supply chain. Are your factory workers or farmers also making enough to make ends meet?
Finally, the experts suggest supporting trade unions and other organizations working to educate and organize workers. Unionized workers earn, on average, 11.2% more than non-unionized workers. To date, unions have won $150 billion in raises for 26 million workers. That amounts to roughly $5,700 in additional income per worker.
It may seem daunting, but finding our way to a living wage is not impossible. One employee at a time, one company at a time, slowly, surely, we'll step our way into a future worth living.
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