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Is Minimum Wage Supposed to be a Livable Wage?

6 min read • Mar 11, 2021 • Derek Miller

The establishment of a minimum wage first occurred in 1938 with the passing of the Fair Labor Standards Act. This act ensured that employees should be paid a minimum amount for the labor they perform and was passed to prevent employers from paying their workers next to nothing for long hours in often dangerous working conditions. 

While the minimum wage has been in effect for more than 80 years, it has recently become a controversial political issue. Some argue that it should be raised to keep workers out of poverty while others assert that it needs to remain the same—or be revoked entirely. Learn more about the minimum wage and whether it actually is a living wage.      

Was Minimum Wage Ever Meant to Be a Living Wage?

From the beginning, the minimum wage was meant to be a living wage—meaning families could live off of the pay comfortably, rather than struggling paycheck-to-paycheck. 

President Franklin Delano Roosevelt was a major proponent of the living wage, saying that “by living wages, I mean more than a bare subsistence level. I mean the wages of a decent living.” With this idea, a family that earned minimum wage could not only cover the costs of food and shelter but also save for emergencies and have the funds to thrive rather than just get by.

Since the enactment of the federal minimum wage, the pay rate has increased 22 times by 12 different presidents. However, it hasn’t been raised since July 2009, when it was increased to $7.25 per hour.

Arguably, the current minimum wage is not a living wage but a poverty wage. A full-time employee who works 40 hours per week for 52 weeks per year would earn just $15,080. Meanwhile, the Census Bureau places the poverty line for 1 person under the age of 65 at $13,465. 

If that full-time employee has a single dependent, like a child, then the poverty line is $17,839. A US family cannot live under the wages of 1 person—or even 2 people—who only earn the minimum wage.  

While states can set their own minimum wage and increase them based on the state’s cost of living and other policies, most simply accept the $7.25 federal level as the bare minimum.   

Can the Minimum Wage Keep Up With the Cost of Living?

The main reason minimum wage workers fall below the poverty line: their income isn’t keeping up with the cost of living. For example, the median price to rent an unfurnished apartment in 2009 was $1,064 per month. In 2018, due to inflation, the cost was $1,588. 

This means that rent alone would cost a minimum wage earner $12,768 in 2009, and someone who made the minimum wage of $7.25 per hour in 2018 would have to pay $6,288 more than their 2009 counterpart ($19,056). 

Furthermore, rent isn’t the only expense that increased in the past decade—car prices, healthcare, education, food, gas, and other expenses have all increased while wages have remained stagnant. Each year, a full-time minimum wage earner has less and less buying power and a harder time caring for themselves and their families as a result. 

The minimum wage vs. cost of living tension grows even stronger in urban areas where the cost of living tends to be much higher. In San Francisco, many waiters can’t afford the cost of living, so they either commute in and out of the city—difficult when you’re working a late shift—or sleep in their cars overnight. Even with California’s minimum wage set at $12 per hour, it is nearly impossible to get by in most of the city’s downtown neighborhoods. 

Is $15 an Hour a Livable Wage?

At present, $15 is considered the new level for a minimum wage. That amount would cover the costs of a modern living wage in most areas and give families considerably more buying power than they currently have. There are several secondary and tertiary benefits to enacting a $15 minimum wage, as explained by the New York Times. Studies have shown that:

  • Low-skilled workers report fewer unmet medical needs in states with higher minimum wages. 
  • Rates of smoking decrease in communities where the minimum wage rises as residents work their way out of poverty and have the time and mental health to quit. 
  • Raising the minimum wage by even $1 would decrease child-neglect reports by 10%.
  • Increasing the minimum wage can reduce the number of homes that have their water and lights shut off while simultaneously allowing families to keep food in the pantry so kids and older relatives can eat. 

These benefits not only help the workers who are directly affected—they can also ease the financial burden of federal, state, and local governments to cover welfare and healthcare programs like SNAP, low-income housing assistance, and Medicaid. 

Lessening the need for poverty-driven assistance can free up funds for other programs or infrastructures. It can also lead to lower taxes in communities, increasing residents’ spending power.

Does a Higher Minimum Wage Increase Prices?

A primary argument against raising the minimum wage is that raising wage costs will increase operating costs for businesses, causing business owners to raise their prices and pass that burden onto customers. 

This could create a snowball effect: the government raises the minimum wage again, only for businesses to raise prices again, and so on. Opponents of raising the minimum wage also argue that employers will hire fewer workers and turn to automation to avoid hiring people entirely. 

However, preliminary studies show that all of these claims might not be as dramatic as they seem. Over a 5-year analysis of McDonald’s locations, many of which opted to pay above the minimum wage to better retain workers, a 10% minimum-wage increase led to only a 1.4% increase in the price of Big Macs but did not affect the sales of Big Macs in any way. 

Yes, the cost of paying workers was passed onto customers—but no one was forced to buy a $15 burger. 

There Are Benefits for Employers Who Offer a Living Wage 

Paying employees a minimum living wage of at least $15 may seem expensive, but there are long-term benefits for your business and the community. You’re more likely to retain workers who are paid well, and those employees can then shop at local businesses—giving your neighbors and customers more money to buy from you. Your workers also pay taxes that benefit your area. 

Consider your state’s minimum wage and if your team members could benefit from a raise.

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Derek Miller

Derek Miller is the CMO of Smack Apparel, the content guru at Great.com, the co-founder of Lofty Llama, and a marketing consultant for small businesses. He specializes in entrepreneurship, small business, and digital marketing, and his work has been featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp.