What a ‘Living Wage’ Actually Means

If you ask a dozen lawmakers what constitutes a “living wage,” you’ll get a dozen answers. Where
does the term come from? And is it even accurate?

By Eric Ravenscraft
June 5, 2019

The term “living wage” gets thrown around enough by politicians and advocacy groups that the
definition can get muddy. The legal minimum wage in the United States is $7.25 per hour,
though some states and cities like New York City and Seattle are experimenting with minimums
as high as $15 an hour. But are these wages enough to live on? And what is a living wage,
anyway?

The minimum wage roughly meshes with federal poverty guidelines. According to the
guidelines, a two-person household with a total annual income below $16,910 is considered to
be living in poverty. To clear the poverty line, one of those two people would have to make $8.13
an hour or more. At least 17 states have minimum wages higher than that. The $15-per-hour
minimum wage in New York City, for example, translates to an annual income of $31,200, which
is almost twice the federal poverty level for a household of two.

However, anyone living in New York City can tell you how laughably low $32,000 per year is for
a single-income household. Likewise, $17,000 may be a poverty-level wage in much of the
country, but that doesn’t mean $18,000 is enough to get by. This flaw in the federal poverty
guidelines was first described by the woman who developed them, Mollie Orshansky.

In 1965, shortly before the United States government adopted the guidelines Ms. Orshansky
wrote: “There is not, and indeed in a rapidly changing pluralistic society there cannot be, one
standard universally accepted and uniformly applicable by which it can be decided who is poor.
… If it is not possible to state unequivocally ‘how much is enough,’ it should be possible to assert
with confidence how much, on an average, is too little.”

Even so, her work was used to establish such a standard anyway. According to a 1955 survey by
the United States Department of Agriculture, the cost of food accounted for a third of the
average American family’s budget after taxes. So, using the Agriculture Department’s economy
food plan as a baseline, her formula multiplied the cost of food by three. The resulting number
became the federal poverty guideline in 1969. That initial number hasn’t been recalculated since.
Instead, it has been adjusted according to the Consumer Price Index to match the rising cost of
food.

As Ms. Orshansky said, this formula establishes a number below which American households
are in poverty, but it doesn’t guarantee that anyone above it is not. It can’t account for things like
the actual cost of housing or transportation, data for which was less readily available in the
1960s.

Fortunately, today there’s much more data available. In 2004, Amy Glasmeier, now a professor
of economic geography and regional planning at the Massachusetts Institute of Technology,

1
developed the Living Wage Calculator. This tool uses more specific data to gauge the basic needs
of American families. It estimates the cost of food, childcare, health care (both insurance
premiums and typical health care costs), housing, transportation and other necessities.

Of course, a family in Los Angeles has needs that are different from those of a family in rural
Iowa, so the calculator breaks down the data by region, all the way to the county level. It also
takes into consideration a more realistic view of American families, with combinations of up
to two adults and up to three children. Two-adult families are further broken down into
households where either one or two adults work.

When you choose your county, you’ll see a breakdown of what each adult in your household will
need to make per hour — rather than per year, since many part-time and hourly jobs aren’t
salaried — in order to cover basic expenses. Below that, you’ll see a breakdown of those
expenses, like food, health care and transportation, which is helpful if any of these categories are
more expensive for you than the national average.

The line-item breakdown also helpfully demonstrates where someone making below a living
wage might have to cut back to make ends meet. As Dr. Glasmeier put it: “Put yourself in the
shoes of somebody that doesn’t make a living wage. What would you do? You wouldn’t pay
certain bills every month. You’d pay them every other month and basically just hope that the
electricity isn’t getting turned off.”

The Living Wage Calculator sets a baseline, but it doesn’t cover everything. The food costs are
based on the Agriculture Department’s low-cost meal plan, but they don’t include eating out at a
restaurant or buying fast food. Entertainment, leisure and even unpaid vacations are not
included, and the calculator makes no allowances for saving money. In other words, even if you
meet the salary criteria for your region, you still might feel a budgetary pinch if you try to save or
ever spend money on luxuries.

Dr. Glasmeier points out that some expenses can be off the mark in regions where the rent is too
damn high.

“In places which have a tendency toward inflation of key goods, such as housing costs,” she said,
“my calculator is going to be insufficient in estimating precisely what the actual cost of housing
will be.” However, since each expense is itemized, you can isolate those costs.

How to make sure you’re making a living wage

Once you’ve used the calculator to see what expenses in your area are like, it’s time to look at
how much you make and compare it with the rest of your industry. The calculator shows typical
annual salaries for several industries at the bottom of the page, but you can find more detailed
information on sites like Glassdoor, Salary.com, and PayScale.

All three let current and former employees anonymously upload their salaries for others,
including potential employees of their companies, to see. This can help you determine if there’s
room to earn more at your company, or another like it. You can search the site for your own
company or for your job title to find out how much other people who do what you do make.

2
Glassdoor also offers a tool called Know Your Worth. Enter your job title, location and years of
experience and Glassdoor will give you an estimated range of how much people in your job
typically make. If your salary falls below the average, it may be time to ask your employer for a
raise, or search for a job with a company that is willing to pay you more. If you’re above the
average and still not making enough, a change in career, position or even geography (if you can
afford it) may be a better move.

If data isn’t available on Glassdoor, you can also try the more straightforward approach: Talk to
your colleagues about how much they make. In the United States, workers have a legally
protected right under Chapter 7 of the National Labor Relations Act to discuss how much they
make with their co-workers. Companies aren’t allowed to set a policy prohibiting salary
discussions — though some do so anyway, since the cost of violating the law is not always high
enough to deter the practice. A company’s culture might also discourage it — has a boss or co-
worker ever told you it’s rude to ask? — but you can file a complaint with the National Labor
Relations Board if you believe your employer is infringing on this right.

Discussing your salary doesn’t just help you figure out if you should ask for a raise. It also gives
you a barometer to measure whether you’re making enough to get by. When you’re not making
much money, it’s easy to believe that your own bad habits — you ate out this week, you bought a
phone — are solely responsible for your financial woes. However, if it turns out that your co-
workers are making significantly more than you are, then there’s more you can do about it.

Making “enough” money is a nebulous concept that’s constantly changing. And there’s always
room to go up. Earning a living wage — however that is defined in your area — isn’t the same as
living comfortably.

These tools can help you figure out the minimum you need to get by, which is necessarily higher
than the pay that the United States government requires. As Dr. Glasmeier put it: “The question
is, can you live on a minimum wage? And the answer is basically, no.”
A version of this article appears in print on June 8, 2019, Section B, Page 1 of the New York
edition with the headline: Do You Earn a ‘Living Wage’? Cut Through the Confusion.

3
 What a ‘Living Wage’ Actually Means
Directions: Use the reading above to answer the questions below
1. What is the Legal Minimum wage in the United States?

2. What have some states been experimenting with?

3. What does the minimum wage roughly mesh with?

4. According to these guidelines, what does a two-person household have

to make below to be considered in poverty?

5. What would have to happen for them to clear the poverty line?

6. How many states have minimum wages above that?

7. What does the $15 an hour translate to as a annual income of?

8. What is the flaw in the Federal Poverty Guidelines according to the

woman that helped create them?

9. By what method was the poverty line established in 1969? Explain this.

10. Has this been recalculated since?

11. How has it been adjusted?

12. What does the formula establish?

13. Does this mean that people with higher incomes are not in poverty?

14. What can’t it account for? And why?

4
15. What data does the Living Wage Calculator gauge?

16. What does it estimate?

17. What does the calculator data by?

18. How does it take into consideration a more realistic view of American
families?

19. When you choose a county what information will you see broken down?
List them

20.How is the Line-item breakdown helpful?

21. What are the food cost based on?

22. What else does the calculator not make allowances for?

23.Even if you meet the salary guidelines for your region why might you
still feel the budgetary pinch?

24. Why can some expenses be off mark in regions?

25. What does the calculator insufficient in estimating?

26.What websites does the author say you can find more detailed
information on salaries for industries?

27.What do all three sites allow current and former employees to do?

28. How is this helpful?

29.What does Glassdoor’s Know Your Worth tool do?

30.If your salary falls below average what should you do?
5
31. If the data isn’t available on Glassdoor what should you do?

32.In the United States how are workers legally protected to discuss what
they make with their coworkers?

33.How does discussing your wages help you?

34. What is the nebulous concept that is constantly changing?

35. What is earning a living wage not the same as?

36. According to Glasmeier, can you live on minimum wage?