Basic compensation theory is that an employer must pay the wage necessary to get the staff needed to competently perform the work required. In other words, if you have a job and not enough qualified people are willing to take it, you’re not paying enough. Easy.
But there is another consideration having nothing to do with this theory. Are the wages sufficient for an employee to live? Most employers want their employees to be satisfied, if not happy, and to be able to enjoy at least the basic accoutrements of life. Whether happy employees are better or more productive is an open question.
It’s presumed they are, and studies suggest so even if there is significant doubt that the conclusions drawn are supported by the evidence, as opposed to other forces at work such as employers treating more productive employees better, thus making them happier about their jobs, which is misinterpreted as the cause of their productivity rather than the result. But I digress.
But what constitutes a living wage? As discussed when the push was on for a $15 minimum wage, this certainly beats a $7.25 minimum wage, but is it enough to live on? If not, what is? MIT economic geographer Amy Glasmeier created a calculator.
Her calculator generates a “living wage” based on the number of children and working adults in a household, as well as the cost of housing, child care, transportation, out-of-pocket health care costs, food and other typical expenses (such as cleaning products) representative of conditions in their communities. She told me recently that roughly 100,000 people visit her living wage calculator every month and that she receives regular questions from many employers large and small who use the tool to set wages.
She also receives dozens of frustrated emails each month from people across America saying they can’t afford to live on her estimate of a living wage. As Dr. Glasmeier readily acknowledges, her tool includes no provision for eating in a restaurant, buying gifts for loved ones, repaying school or credit card debt, saving for retirement or unexpected expenses or taking a vacation, however brief.
Obviously, there are significant individual variables that make it hard, if not impossible, to calculate any individual’s “living wage.” Some are obvious, such as how many kids and their ages, but then, should employers calculate their wages to address these objective variables? Should the employee with three kids be paid substantially more than an employee with no children for doing the same job?
And then there are the less obvious variable.
Dr. Glasmeier, to her credit, recently made some changes to her calculator. She added the cost of cellphone and broadband service, gathered more granular county data on child care costs and introduced a “civic engagement” category to support recreation, pets, museums, movies and reading material. Those may seem like minor tweaks, but they’re important progress, however partial.
Is it the employer’s responsibility to make sure every employee can not only get an iPhone (and what happens when the new iPhone comes out? Should they be limited to an old version so their friends make fun of them for being uncool?) but unlimited broadband? Or will 4 gigs be close enough for survival?
The progressive approach, going back to Teddy Roosevelt, is to consider paying a living wage a moral imperative. Of course, morality being as vague and malleable as it is, the needs Teddy spoke of and the demands of morality today are a bit different.
Around the same time, however, followers of a very different tradition were claiming that morality had no relevance to the question of wages. In 1926, one scholar called a “just” wage “a contradiction in terms.” By the 1980s, many economists had fully embraced this view, and a philosopher claimed the competitive market was a “morally free zone.”
But to exclude moral considerations from markets is itself a moral choice, even if the calculus is not always simple. Some employers with razor-thin margins might be unable to pay a living wage, and even Ryan argued that such businesses should not be obligated to do so during a rough patch. In the long run, however, Ryan held that part of being a successful business was paying a living wage. Those that did not should eventually go out of business.
In other words, if you want to start and maintain a business, the cost is not only the start-up expenses for the normal things like rent, utilities, cost of goods sold, but the cost of providing employees a living wage. Even if you can get oodles of people applying for a job at whatever wage you can afford to pay, and they’re fully qualified and competent, it’s not good enough. If it’s not a wage upon which they can “survive,” providing survival includes broadband, date night and a movie once a month, it’s morally inadequate. Either make it happen or your business deserves to fail. What employee doesn’t benefit from his employer closing the doors?
And while it is a common refrain that a living wage would force employers to hire fewer workers and thus destroy jobs, there are persuasive empirical and philosophical responses to this objection. The stagnation of real wages for American workers does not reflect their low productivity so much as the increasing concentration of wealth within companies. In 1965, the average top chief executive made 21 times as much as a typical worker in America. In 2020, the ratio was 351 to 1.
The optics of CEOs making millions is certainly unseemly, and arguably completely unnecessary as it’s not as if they can get a gig playing for the NBA if that CEO thing doesn’t work out. But does the guy who owns the corner hardware store bring home millions? Most businesses in America are small, and most business owners don’t make millions. And is the comparison between the earnings of business owners and employees valid in any event, as the former took the risks to make a business happen while the latter shows up, does a job and gets a guaranteed paycheck. If the business fails to turn a profit, it’s the owner who takes the hit.
It’s one thing to argue that businesses shouldn’t take advantage of starving workers and exploit their lack of options. But even a decent and moral business owner needs to figure out what the “right” wages should be to take care of his employees. What is the “right” amount to constitute “living”? What does it take in this society to treat an employee fairly?
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The central problem with the wage concept is it is unreliable. Especially in “at will” states, it could be gone tomorrow. Workers who have financed a house, vehicles, and credit card debt based on the expectation of their “living wage” are screwed proper on the day they get their pink slips.
Don’t depend on wages. Like “Don’t be poor,” this is some of my top-flight advice, which I share with colleagues here out of my beneficent regard for their well-being. People should focus during their early careers in piling up some assets so they can be free of the wage-dependence problem.
My advice would be learn a marketable skill. That High School graduate who gets the five thousand dollar associates degree in welding, plumbing or other useful degrees, can be making near or over six figures a few years after graduation. Or even start their own small business, hiring other graduates with similar skills.
That blue or pink hair person with all the tats and piercings who borrowed a couple hundred grand for the Underwater Basket Weaving degree who asks you how you want your double caf latte or do you want fries with that, will never make a living wage because they made a stupid choice. Nothing wrong with underwater basket weaving as a hobby, just learn a marketable skill first. Go to law school or med school. Get an engineering degree. The world needs more doctors and nurses, engineers and lawyers.
Said pink-haired McDonald’s employee won’t earn a living wage at any rate, because as soon as one factors in entertainment (color it as “mental health” allowances) or the latest iPhone, Mickey-Dee’s will bring in the kiosks so that you can order your drink from a machine and employ fewer and fewer staff. Woe to any non customer facing office drone, they can be outsourced to Mumbai or Manila for pennies on the dollar.
Hey, there’s always Uber and DoorDash, I guess.
How much can you save when you need to buy a new iPhone, donate to BLM, Defund Police and Abolish Prisons and buy new jeans with pre-holes built right in?
When I think of all the highly valuable jeans I threw away, I do rue it sorely.
…it never gets here, but don’t ya know, there’s a…
40 years ago, a family with one income from a low skill job was able to afford to buy a house. Today productivity is higher than ever, but housing orders have exploded and wages are stagnant.
This is one of those absurd lies that the young people persist in spreading. The minimum wage 40 years ago was $1.60/hour. The average cost of a house was $100,000. Do the math.
[Quickly Google results not guaranteed:]
1980:
Federal minimum wage $3.10. ($6,200 per year)
Median family income per year: $21,020.
Median house price: $47,020.
40 years ago was 1981.
According to the U.S. Dept. of Labor, Federal Minimum Wage was $3.35 in 1981.
According to the U.S. Census Bureau, Median Home Value in 1980 was $47,200.
Actually, Carter raised the federal minimum wage on January 1, 1981 (which if math serves me right, is 40 years almost 41 years ago) to $3.35.
Minimum wage was $3.35/hour ($6,968 annualized) and median U.S. home price was $68 900. Here in the flats, there wasn’t much bank financing for existing homes, and so it was generally cash or seller-carry.
And you weren’t expecting to live on minimum wage back then.
40 years ago the Federal minimum wage was $3.35, effective 1/1/81 under the FLSA. Average home price is harder to nail down since it varies state to state, but you’re also assuming someone at the bottom end of the wage ladder is buying a house at the middle of the price ladder. I don’t think you can call it an “absurd lie” based on one illogical assumption and one statement that’s false by a factor of 100%.
I can’t believe you just trolled SJ.
I’m sorry. I was trolling LDA for making this infantile and off-topic comment. I didn’t realize it would catch others. My bad.
I didn’t say minimum wage. I said low skill job. When “The Simpsons stated airing on TV in 1990, it was an accurate representation of lower middle class: one income from a high school educated factory/plant worker, stay-at-home mother, three kids, a house and a car. Today that’s a fantasy.
Not to quibble, but for non exempt workers, ( ie. restaurant workers and farm labor), the minimum wage was $3.10/hr and the median house price was around $47,000 in 1980.
Low skilled labor doesn’t necessarily equate to low pay. For instance, experienced construction laborers made 3 or 4 times the minimum wage. Remember, minimum wage is supposed to be a starting wage for inexperienced workers, mostly kids in high school just starting out in the labor force.
Also consider that there are so many more “necessary” monthly expenditures than there were 40 years ago. No cell phones, no internet, cable tv was considered a luxury.
Maybe this comment will get dumped as off-topic, but the question seems to hinge on whether a certain minimum “living” wage is a moral imperative, usually considered significantly above where the actual minimum wage resides.
There’s a good argument that it can’t be an imperative, and it’s similar to your notion that business with low margins often can’t afford to raise compensation much, if at all. The reason is that employers paying minimum wage are almost never doing anything very new or innovative. They use easy-to-copy business models and are under intense competition for consumer dollars. Their profits are in the single-digit percent range. Not everyone can be Microsoft with 40% profit margins.
I once heard a left-leaning radio talk show host say that if a business couldn’t afford to pay their employees his definition of a living wage, then their business model sucks and they should therefore go out of business. So yes, there are apparently those that think no job is better than even the offer of one that pays less than they think is appropriate.
Society has come to rely on “low margin, easy-to-copy” businesses for our ordinary needs and wants. Make fun of them all you want, but consider what life would like without them.
I’m not knocking them. However, the only alternative is less competition, less choice combined with higher prices (and therefore less jobs.)
After giving it serious consideration, my opinion is unmoved: An employer’s primary motivation should be setting a wage at a sufficient level to get (and keep) the necessary talent they need to do the work.
If they want to (and are able to) cut profits a little more to boost compensation and thereby boost employee satisfaction, that’s fine, but there’s no moral imperative to do it. It’s still a pure cost/benefit analysis in the end.
Happy employees stick around, saving you acquisition and training costs, and might even work harder. If people can’t “live” on the salary you’re offering, that should be reflected by your inability to fill positions.
Interesting that the question posed by the post was what things should a “living wage” take into account and yet here we are, with the millennial whine about how much easier boomers had it. If only they could monetize whining, they would be filthy rich.
It seems axiomatic that the better off the population gets overall, the more complaining there is about inequality and poverty, etc.
It might be uncouth to point out, but the vast majority of the poor and young complainers live cleaner, longer, and easier lives than Andrew Carnegie did.
Lyrics, since it might be a little tough to decipher:
F*** the politically minded, here’s something I want to say
About the state of the nation, the way they treat us today
At school they give you sh**, drop you in a pit
You try, you try, you try to get out, but you can’t because they’ve f***ed you about
Then you’re a prime example of how they must not be
This is just a sample, what they’ve done to you and me
[Chorus]
Do they owe us a living?
Course they do, course they do
Owe us a living?
Course they do, course they do
Owe us a living?
Course they f***ing do
They don’t want me anymore, threw it on the floor
Used to call me sweet thing, I’m nobody’s plaything
And now that I am different, love to bust my head
You’d love to see me cop out, love to see me dead
[Chorus]
Do they owe us a living?
Course they do, course they do
Owe us a living?
Course they do, course they do
Owe us a living?
Course they f***ing do
Colleges are considered a necessity, charging $15K to 60K/year (a negative wage) to provide a setting for learning, of which many and possibly all subjects are not useful to future earnings.
Businesses are considered selfish bastards for paying $20K to $40K/year for minimally productive people to produce something and also learn to be more productive. If the business is truly mean, the employee can immediately switch to another business for his paid education in actually earning something.
Meanwhile, people can read multiple books at all skill levels. Mentioning that at an interview, and relating a few self-acquired facts gets attention.
The US Supreme Court decision in Griggs was devastating to individual accomplishment. It made any testing for aptitude by companies (selfish profit seekers) quite risky. This left testing or verification for aptitude to colleges (altruistic and caring non-profit seekers) at great expense to the future employee.
What is the “right” amount to consider “living”?
You could start that discussion with, “an amount where the government is not compelled to step in and supplement that person’s income”. That is, where the society isn’t paying for the costs the business has externalized. And work your collective way through, “how many people is that wage supporting”, “what is the break-even point between a second wage and child-care”, and so on. All the oldies but goodies.
MelK,
When a person Frank is unemployed or can’t work, the govt may decide to provide some income. If Frank accepts a job at any wage, you think the employer Bill should pay as much or more than the govt was paying.
Any employment arrangement is voluntary for Frank, and so can only help him. It’s illogical, and damaging to Frank’s choices, to require Bill to pay some imposed amount or not hire Frank at all. Hiring Frank doesn’t impose costs on the govt.
That is why minimum wage requirement are damaging. They only keep Frank from accepting a job that he decides will make him better off.