What Are The Benefits of a Living Wage?

Today, millions of working people struggle to cover the cost of housing, food, health care, childcare and other basic necessities for themselves and their families. A worker who is paid the minimum wage of $7.25/hour, or any wage below a living wage, cannot possibly afford basic necessities without assistance. This creates problems not only for workers, but also for businesses and the local economy. The living wage movement is an important initiative that can bring improved conditions for working people, businesses and our local economy.

A living wage can pull working families out of poverty.

Nearly 40% of workers in Orange County earn less than a living wage.  As a result, a large portion of county residents are, in fact, working poor. With salaries at or slightly above the minimum wage, each day the working poor in our county are forced to make difficult choices such as buying food or paying rent, filling a prescription or the gas tank.  If these workers earned at least a living wage of $13.15 / hour rather than the legal minimum of $7.25 / hour, many would be lifted out of poverty.

In addition, many other workers who earn slightly over a living wage will likely benefit from wage increases through the “spill over”, or “ripple”, effect. As workers with the lowest earnings in a firm are given raises, so are other workers with slightly higher wage. This “spill over” preserves the wage structure in a firm.

Living wages benefit working families. According the Economic Policy Institute, evidence from an analysis of the 1996-97 minimum wage increase shows that the average minimum wage worker brings home more than half (54%) of his or her family’s weekly earnings.

A living wage reverses the trend of the declining real value of minimum wage and creates a minimum income threshold that more accurately accounts for the cost of living today.

 

Living Wages Benefit Businesses and the Local Economy

Studies have shown that paying a living wage leads to increased worker morale, worker health and quality of service. Paying a living wage also lowers absenteeism, turnover and recruiting and training costs.

Raising wages is affordable - employers are able to absorb the costs of a wage increases through higher worker productivity and lowered administrative costs.

Living wages enable working people to become self-sufficient and rely less on social services.

Living wages stimulate the economy through increased consumer spending and the money multiplier effect.

 wheel.png

What is a Minimum Standard of Living?

The purpose of minimum wage, according to the Fair Labor Act, is to enable workers and their families to afford “the minimum standard of living necessary for health, efficiency and general well-being…” But how do we measure “the minimum standard of living”? And is the federal poverty threshold a reasonable minimum standard of living?

The poverty threshold was established for statistical purposes, as a means of having something to measure against during the John F. Kennedy and Lyndon Johnson eras and the “War on Poverty”. It is calculated using a method developed in 1963, by the economist Mollie Orshansky. The federal poverty threshold is based on the cost of food and the assumption that food accounts for one-third of a person’s expenses. Using this formula, (the USDA Thrifty Food Plan multiplied by 3) the poverty threshold for one adult in 2010 is $11,161.

Although the poverty threshold is adjusted annually according to change in CPI-U, it does not account for the rising relative costs of housing, childcare, health care and transportation, which now represent a much larger portion of a family’s budget. The poverty threshold also does not factor in regional differences in the cost of living. The U.S. Census Bureau states that purpose of the poverty threshold is, in fact, to act “as a statistical yardstick, not as a complete description of what people and families need to live.”

For this reason, many organizations - such as Orange County Living Wage, Just Economics, and the NC Justice Center - strive to more accurately calculate a minimum standard of living for workers and their families. The living wage movement is based on the premise that wages should keep workers and their families above the minimum standard of living rather than just above the poverty threshold.

 

Sources:

Just Economics, http://justeconomicswnc.org/

Pollin, Robert, Mark Brenner et al. A Measure of Fairness, p.22.

US Census Bureau, Poverty Thresholds 2009

Source: Analysis based on U.S. Census Bureau, American Community Survey 2006-2008

Sklar, Holly.A Just Minimum Wage, p.38

A Just Minimum Wage, p.38