Definition
A “living wage” refers to the income necessary to meet basic needs, including housing, food, health care, child care, and transportation, without support from public assistance or other sources. On the other hand, a “minimum wage” is the least amount an employer can legally pay an employee per hour, which is set by government legislation. Despite the legal requirement behind minimum wage, it may or may not cover a worker’s basic needs, and is often lower than the living wage.
Key Takeaways
- Living Wage refers to the theoretical income level which allows an individual to afford adequate shelter, food and other basic necessities. It often exceeds the current minimum wage standards, taking into account the local cost of living, inflation and the particular needs of a family.
- Minimum Wage is the lowest remuneration employers can legally pay their workers. It is set by the government and does not necessarily reflect the real cost of living in a given area or the specific circumstances of the employee.
- The discordance between Living Wage and Minimum Wage can lead to financial stress for the workers. They might struggle to meet their basic needs, leading to issues such as inadequate nutrition, physical health problems, and mental stress.
Importance
The distinction between living wage vs minimum wage is fundamentally important in discussions related to economics, income inequality, and social justice. The minimum wage is the legal base pay set by the government, indicating the least an employer can pay its workers per hour.
However, it often falls short of covering basic needs in many areas. On the other hand, a living wage introduces the concept of a wage that is high enough to maintain a normal standard of living in a specific location.
This includes covering expenses like housing, food, transportation, healthcare, and other necessities, including some discretionary income. Understanding the difference is crucial in policy-making and for workers’ rights, as it highlights the gap between wages legislated by the government and the real costs of living, thereby underlining issues in wage policy and potential pathways to address income inequality.
Explanation
The primary purpose of the minimum wage is to protect workers against unduly low pay. It provides a standard of the lowest pay that employers can legally give to their employees per hour, regardless of the type of work.
It is usually set by federal and state laws and is used for a plethora of jobs, predominantly in the service industry. It is seen as a wage floor designed to ensure that all workers can earn a basic income, although there is debate about whether it fulfills this role effectively since it doesn’t always keep pace with inflation or cost of living.
On the other hand, the concept of a living wage takes a different approach and serves a somewhat different purpose. While the minimum wage is a legally defined lower limit on wages, a living wage calculates the amount of income a worker needs to cover basic needs within their specific geographical location.
This estimate includes costs such as housing, food, transportation, healthcare, and other essentials, plus a small amount for unexpected expenses. The primary purpose of a living wage is to ensure that working individuals and families earn enough to maintain a safe and decent standard of living within their community, without relying on public assistance or charity.
Examples of Living Wage vs Minimum Wage
San Francisco, USA: According to the American government, the minimum wage in San Francisco as of 2021 is $00 per hour, however, MIT calculates that the living wage in this city would be approximately $44 per hour for a single adult, considering the high living costs such as housing, food, medical, and transportation. This shows a significant disparity between the two in one of the most expensive cities in the country.London, United Kingdom: Since 2021, the national minimum wage for individuals over 25 years old is £
91 (approximately $21 USD), but the Living Wage Foundation argues that based on essential needs and living costs, the real living wage should be £85 (approximately $89 USD), and even higher (£
05) in London, reflecting the difference between the government-imposed minimum wage and what is considered a fair living wage in the city.Victoria, Australia: In Australia, as of 2021, the national minimum wage is $33 AUD per hour. However, research conducted by the Australian Council of Social Service and UNSW indicates that for single adults, the living wage would need to be about $79 AUD per hour in order to cover basic needs and lead a modest but decent life, highlighting the gap between the legislated minimum wage and a genuine living wage.
FAQ: Living Wage vs Minimum Wage
What is a Living Wage?
A Living Wage is the minimum income necessary for a worker to meet their basic needs. This includes the basics such as food, housing, and other essential needs like clothing. The goal of a living wage is to allow a worker to afford a basic but decent standard of living. The exact amount will depend on the cost of living in a particular geographic area.
What is a Minimum Wage?
Minimum Wage is the lowest pay that employers can legally give to workers. The federal, state, or local government sets the minimum wage. The aim is to protect workers against unduly low pay. However, it may not be high enough to cover basic living expenses, or it might even be below the poverty line.
What is the difference between Living Wage and Minimum Wage?
The primary difference between a living wage and a minimum wage is what they cover. A minimum wage is typically set by law and can fall short of what might be necessary to cover the basic cost of living in a given place, which is what the living wage attempts to address. Moreover, the living wage can differ significantly from place to place, reflecting local costs of living, whereas the minimum wage is the same nationwide.
Why is Living Wage important?
A living wage is important because it is a reflection of how much income is necessary to cover a worker’s basic needs, ensuring workers earn enough to lead a decent life. It promotes social fairness by preventing workers from being underpaid for their labor.
Does everyone earn at least the Living Wage or Minimum Wage?
Not necessarily. While laws require employers to pay at least the minimum wage, not all workers are covered under these laws. Some may fall through the cracks due to the nature of their jobs or employment structure. Furthermore, the living wage is a benchmark rather than a legal requirement, so many workers do not earn a living wage.
Related Entrepreneurship Terms
- Cost of Living: This refers to the amount of money needed to cover basic expenses such as housing, food, taxes, and healthcare in a certain geographic location.
- Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
- Poverty Line: The minimum level of income deemed adequate in a particular country.
- Income Inequality: The unequal distribution of household or individual income across the various participants in an economy.
- Working Poor: Individuals who spend 27 weeks or more in a year in the labor force either working or looking for work, but whose incomes fall below the poverty line.
Sources for More Information
- U.S. Department of Labor: This is the official website for the U.S. Department of Labor. It provides a wealth of information about minimum wages laws in the United States.
- Living Wage Foundation: The Living Wage Foundation is a UK-based organization that focuses on living wage. Its website provides a lot of resources and information about the living wage.
- Bureau of Labor Statistics: As part of the U.S. Department of Labor, this website provides statistics and information related to employment and wage.
- OECD (Organisation for Economic Co-operation and Development): The OECD provides data, analysis, and various resources on a range of economic issues, including wages.
