What is a Living Wage?

A Living Wage is the minimum amount of income we need to meet our basic needs, that is, for housing, clothing, health, transport, utilities, hygiene, education, and unexpected events. With that wage, we should be able to afford a decent standard of living for ourselves and our families.

It is the minimum amount of income people need to experience economic security, which is the feeling of stability and safety when it comes to our finances, and knowing we can pay for essentials.

It is not the same as the minimum wage, which is the lowest amount an employer can legally pay their workers. A living wage aims higher.

The Global Living Wage Coalition has the following definition of the term:

“The remuneration received for a standard workweek by a worker in a particular place sufficient to afford a decent standard of living for the worker and her or his family.”

“Elements of a decent standard of living include food, water, housing, education, health care, transportation, clothing, and other essential needs including provision for unexpected events.”

The concept of a living wage has been around for thousands of years. Ancient Greek thinkers like Aristotle (384-322 BC) and Plato (428-348 BC approx.) discussed the concept of a wage that enables a good life, where basic needs are met.

Why Does it Matter?

When a country’s minimum wage is not enough to cover a worker’s fundamental needs, a living wage becomes essential.

People who work full-time shouldn’t struggle to put food on the table, pay for safe housing, or access basic healthcare.

A living wage aims to make sure that a worker’s income allows them to live with dignity.

Illustration of a family, home, piggy bank, tapwater, education, healthcare, groceries, and the definition of A LIVING WAGE.
Image created by Market Business News.

How is a Living Wage Calculated?

Unlike a minimum wage, which the government of a country calculates, a living wage is not one single number. It depends on several factors:

  • Where you live

The cost of living varies drastically. Renting or buying somewhere to live, for example, is typically much more expensive in a large city than in a small town.

  • Family Size

There’s a difference between supporting yourself and supporting a whole family.

  • Essential Needs

This includes basics (essentials) like food, housing, clothing, healthcare, transportation, utilities, education, childcare, personal savings, and a little extra for unexpected expenses.

  • Local taxes

Local income tax and national insurance contribution levels can greatly affect a worker’s disposable income.

  • Healthcare

Healthcare costs vary by country; some offer it free of charge while others do not. These expenses, along with employer-provided health insurance contributions, are important considerations when calculating a living wage.

  • Education costs

For families with children, the cost of school supplies, fees, and potentially college savings could be considered. As with healthcare, free education is not widely available in every country.

Organizations that advocate for living wages research these factors thoroughly to come up with region-specific hourly wage recommendations.

The Debate

Most of us agree that workers deserve a living wage. However, there are disagreements on how to achieve it:

  • Businesses

Some people argue that increased wages could force businesses to raise prices, lay off workers, or even shut down.

  • Government Policies

Others believe that it is the government’s responsibility to either raise minimum wages or provide support for workers who cannot meet basic needs.

  • The Subsidy Concern

However, some economists worry that providing this support could inadvertently reward companies that pay less than a living wage, as the government essentially subsidizes their labor costs. Government assistance programs might remove the pressure on businesses to pay a living wage if they know the government will fill the gap for workers, they wonder.

The Benefits of a Living Wage

Here are some potential benefits to the idea of a living wage:

  • Reduced Poverty

When people earn enough to live on, fewer families slip into poverty.

  • Stronger Communities

Workers with a stable income can contribute more to their local economies.

  • Personal Health

Stress from financial burdens takes a toll on physical and mental health.

  • Public Health

The likelihood of public health scares, such as epidemics, decreases when everyone has access to proper healthcare.

  • Worker Morale

We are more likely to be loyal to our employers and work more productively if we receive a living wage.

  • Economic Growth

If workers have more money to spend, demand for goods and services will rise, which will help boost the economy.

  • Reduced Inequality

The income gap, the difference between high-income earners and low-income earners, will be smaller.

  • Lower Government Spending

If the living wage becomes a country’s minimum wage, the government will spend less on assistance programs.

  • Sustainable Business Practices

Businesses that pay a living wage will be viewed more favorably, which can lead to sustainable long-term growth. In today’s society, companies that treat their employees fairly have a better brand image.

Final thoughts

The idea of ensuring that hard work translates into a decent life for individuals and families is a popular one, resonating with most of us.

However, the specific discussion about a living wage is complex. There are many factors to consider, and there isn’t always a consensus on how much importance to place on each one.