The Case for the Living Wage

The living wage movement is working to change the way we Americans think about the minimum wage. The concept of living wage is not new, according to a January 2006, NY Times Magazine article titled, “What Is a Living Wage?”

“It was a popular workers' refrain in the late 19th century and was the title of a 1906 book by John Ryan, a Roman Catholic priest.”

Source: New York Times Magazine

There are several ways to compute a living wage. One way is to compute the living wage by multiplying the cost of housing by some factor to compute a monthly wage. The folks at Universal Living Wage use federal standards for fair market rents within each metropolitan statistical area or MSA.

“The concept is simple. It is based on the premise that if a person works 40 hours a week, then he/she should be able to afford basic housing. We use two existing Federal guidelines to determine what the Universal Living Wage should be. The first guideline … dictates that no more than 30% of a person's gross monthly income should be spent on housing. The second guideline, the Fair Market Rents (FMRs) [is] established by HUD throughout the country for each municipality and all other areas. Therefore, the Universal Living Wage will vary per area in accordance with the FMR. FMRs are based on gross rent estimates [that] include shelter, rent and the cost of utilities except telephone service.

Source: Universal Living Wage

This method of computing a living wage produces substantially higher wages than other formulas. The living wage for the Washington metro area using this method starts at $17.60 per hour.

The folks at the Economic Policy Institute use a formula based on federal poverty levels.

“The level of the living wage is usually determined by consulting the federal poverty guidelines for a specific family size. Often, living wage levels are equal to what a full-year, full-time worker would need to earn to support a family of four at the poverty line ($17,690 a year, or $8.20 an hour, in 2000). Some living wage rates are set equal to 130% of the poverty line, which is the maximum income a family can have and still be eligible for food stamps. The rationale behind some living wage proposals is that these jobs should pay enough so that these families do not need government assistance. … Cities and counties with a higher cost of living tend to have higher living wage levels. The wage rates specified by living wage ordinances range from a low of $6.25 in Milwaukee to a high of $10.75 in San Jose.”

Source: Economic Policy Institute FAQ

The living wage ordinance that was passed in 2000 within Arlington, VA, based on the EPI methodology, was $10.21 per hour.

Even some business and investor groups are challenging the minimum wage, calling instead for living wages. The folks at Responsible Wealth encourage businesses and investors to sign a Living Wage Covenant.

“The population of America’s working poor has grown because the wage floor has failed to keep pace with the cost of living over the last three decades. The federal minimum wage, which in 1968 stood at 86% of the wage necessary to lift a worker and his or her family to the official poverty line for a family of four, today represents less than 64% of that "living wage." The federal minimum wage, presently $5.15 an hour, would need to be raised to $8.20 an hour simply to meet the federal poverty level. In many higher-cost regions, a true living wage is substantially higher (up to $18 per hour).”

Source: Responsible Wealth

Even corporate “bad-guy” Wal-Mart has signed on in support of substantially raising the federal minimum wage. From the same NYT article referenced above,

“Our current average hourly wage for workers is $9.68," Lee Culpepper, a Wal-Mart spokesman, told me. "So I would think raising the wage would have minimal impact on our workers. But we think it would have a beneficial effect on our customers.”

Source: New York Times Magazine

Even the Catholic Church has weighed in on the issue.

“… the moral justification for a living wage [can be traced] back to the encyclicals of Popes Leo XIII and Pius XI and John Paul II, in which the pontiffs warned against the excesses of capitalism.”

Source: New York Times Magazine

Studies of minimum wage increases and living wage ordinances have surprised economists. Studies have shown, that instead of gloom and doom predicted by most economic theories.

“… that a modest increase in wages did not appear to cause any significant harm to employment; in some cases, a rise in the minimum wage even resulted in a slight increase in employment.”

Source: New York Times Magazine

Which all sounds pretty much good and dandy to most if not all of my readers. What is there not to like? Raising the floor of wages can help working people to get out of poverty. As one campaign puts it, “if a person works 40 hours a week, then he/she should be able to afford basic housing.”

Yea, team!

But what are the costs?

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