Minimum Wages vs Average Household Income

When one is referring to minimum wage in economic terms, they are usually referring to the lowest amount a worker has to earn in order to be able to afford adequate shelter, food, pay bills comfortably etc., This amount, which varies greatly between states and even counties, is also known as the ‘living wage’. However the accuracy of the latter is open to discussion, as earning a satisfactory living wage would mean that no person would be spending more than 30% of their annual wage on rent or shelter.

Minimum Wage vs Living Wage

According to the Fair Labor Statistics Act (FLSA) every employer in the United States is required to pay workers the federal minimum wage, as it is the minimum legal rate. Regions like Maryland and Los Angeles have two different rates of living wage, depending on the health benefits included in the workers’ pay packet.

Depending on where one lives in the US they might be able to afford a big house on a shoestring budget, or a shoebox on a ‘healthy’ budget. The states with the highest living wage are Washington D.C., Hawaii, Massachusetts, Connecticut and New York and the states with the lowest living wage are Idaho, South Dakota, West Virginia, Arkansas and Kentucky.

But does living in one of the top five states with the highest living wage mean you will be able to live more comfortably than you would in the lowest wage states? The answer is no, not really, and there are several reasons why.

Minimum Wage or Living Wage?

Minimum Wage vs Living Wage

Minimum wage does not necessarily mean living wage, as we touched upon briefly above. This is the reason why local governments had to establish both a living wage and a minimum wage. The living wage is also an informal benchmark, as the parameters used to establish it can be varied and subjective.

Generally speaking a living wage should cover all the basics needed for a family to live comfortably, whereas minimum wage refers to the legal limit set by labor laws and the US government, established to ensure no worker lives below the poverty line. But common observation will show us that this is not an entirely effective policy, as workers in many states are unable to live comfortably, and spend more than 30% of their total wage on housing.

Hours Needed to Earn a Living

To understand what all the aforementioned mean, one has to look no further than the statistics revealing how many number of working hours are required (paid at minimum wage) in order to earn a living wage in the US.

In the state of Hawaii, the average worker on minimum wage would have to work a whopping 110.7 hours in order to earn a basic living, with a similar figure appearing in the states of Virginia (103.2), Maryland (98.3), New Hampshire (95.1) and New Jersey (94.3), among others. This means that workers on minimum wage in the United States would have to work almost three times more hours than the workers in the United Kingdom, for instance.

To put things into perspective try to imagine this. According to the Fair Labor Standards Act (FLSA), if a worker is 16 years of age or older, their employer can request that they work up to 12 hours a day. This will mean that the maximum number of hours one can work in a week, even if they work 7 days a week, is 84 hours.

Taken the aforementioned figure of 84 hours an employer can occupy a worker legally in any given week, workers who earn minimum wage on all the above states, by default, will never be able to earn a living wage.

The picture changes positively in the states of Washington, South Dakota, Oregon, Montana and Minnesota, where a worker on minimum wage can earn a living wage working 67-71 hours on average, however, a 70-hour week still amounts to much more than the recommended healthy work-life balance.

Impact on the Economy

Living Wage Value

Workers in almost every US state have to work very long hours, beyond what is the legal limit in any developed country, just to earn a very basic living wage, without being able to afford any additional, or even emergency, expenses, such as house or car repairs. This in effect means that many minimum wage workers face a life on, or in some cases under, the poverty line.

Current estimates place around 12.7 percent of the US population below the poverty line, a figure which roughly equates to around 43 million Americans living in poverty.

Fast-food Low-pay

Minimum Wage Value

In a recent stand-off between fast food chains and employees, concerning the latter’s demand of a minimum wage increase, fast food chains warned that if the minimum wage rate increased, their food prices would also have to increase, because God forbid they offered that to their employees out of their profit margin.

As a matter of fact, there is another way. For instance, the fast food In-N-Out Burger, pays their employees considerably above the law-imposed minimum wage rate, without sacrificing quality or fair prices for customers. In fact, some In-N-Out store managers are famously earning around $160,000, which is on par with a Silicon Valley’s tech worker annual salary.

Nevertheless, there is a ‘method in the madness’, as the well-paid In-N-Out Burger employees offer the company increased productivity, loyalty and contribute to the chain’s continued success.

In January 2018, fast food workers in New York celebrated an endorsement of their proposal for an increase in fast-food worker wages by the New York Wage Board. This would mean that fast food workers’ rate of pay will increase within the next three to six years. Fast food workers in New York City are set to see their income increase by $1.50 to $13.50 per work hour on Dec. 31, 2018 .

The new minimum wage increase will also apply to fast food workers around the rest of the state, with a $1 rise applied to every working hour. As always, there is a catch, as the increase will only apply to workers of restaurants that are part of a chain, limited to those owning more than thirty locations nationwide.

All the aforementioned are gradual steps leading to the worker’s main demand, which is minimum wage that would reflect the living wage of $15 per hour. Governor Andrew Cuomo, had proposed the rise in 2016 and has advocated strongly towards that goal.

Reportedly, from 2021 onwards, the minimum wage rate will be decided by each state’s budget director, who will base any decisions on minimum wage increases on the consumer price index, which measures the fluctuations on the pricing of consumer goods and services purchased by households in America. This sounds like a reasonable move, however, it is unlikely that all will be plain sailing, as economic inequality is pushing low-income families to poverty, unemployment and subsequently debt.