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 U.S. government adopted the guidelines 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 U.S. 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 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.
The Living Wage Calculator provides a clearer starting point
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, 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, child care, 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 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.
Glasmeier points out that some expenses can be off the mark in regions where the rent is too 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.
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 U.S. government requires. As Glasmeier put it: “The question is, can you live on a minimum wage? And the answer is basically, no.”