Why Is Living Wage Not the Minimum Wage?

Kelly L. Reburn, Fiona E. Moyer, Randy J. Knebel, and Mark C. Bowler, East Carolina University

Introduction

Whereas organizations are legally obligated to provide their employees with a minimum wage, recent literature has introduced the concept of a living wage (e.g., see Werner & Lim, 2016).  Rather than being a threshold that employees are entitled to by law, living wage refers to the minimum income necessary for an employee to be able to meet the minimum standards of subsisting in their specific community or region (Glasmeier & MIT, 2018).  Thus, it is a relative, market-based value that combines the wages of workers with costs of basic needs in a specific geographical region (Glasmeier & MIT, 2018; Werner & Lim, 2016).  Although much of the research on living wage falls outside of the realm of I-O psychology, it is time that the concept be considered.  It is well understood that the design of compensation systems and distribution of pay contribute to employees' motivation to work (Jurgensen, 1978; Pinder, 2008).  These, however, are often influenced by legal requirements that fail to consider the region or community-specific cost of living and typical expenses.  Thus, the lowest paid employees may struggle or fail to obtain the income necessary to fulfill their basic needs.  The inability to meet basic needs can contribute to a lower quality of life and poorer well-being that, in turn, can influence the performance of low-wage workers.  Research in this area, however, is limited.  This article seeks to expand on living wage research and inspire professionals and academics in the fields of I-O psychology and occupational health psychology (OHP) to explore the question of, “Why is living wage not the minimum wage?”  More importantly, we hope to inspire research into the motivational impact associated with living wage.

The current article examines the U.S. state-level deficit between minimum wage and living wage using the MIT Living Wage Tool by Dr. Amy Glasmeier and MIT (2018) and public access data regarding mean and median hourly wages (United States Bureau of Labor Statistics, 2016).  We take this comparison a step further by compiling additional public data on state-level physical and mental health (Centers for Disease Control and Prevention, 2016).  Such comparisons seek to illustrate the importance in addressing the deficit and recognizing its impact on employee well-being.

Living Wage

The federal minimum wage, presently effective since 2009, is $7.25 per hour (United States Department of Labor, n.d.).  This amount represents the threshold an employer is legally required to pay employees.  Initially established by the Fair Labor Standards Act (FLSA, 1938), the federal minimum wage has been raised 22 times (Perez, 2015).  Currently, it has been almost 10 years since the last increase (United States Department of Labor, n.d.).  Adjusting for inflation, the minimum wage was highest in 1968 at a value that corresponds to $11.08 in 2016 dollars (Wenger, 2016).  This inflation adjusted figure represents that which is nearly $4.00 more than the current minimum wage of $7.25.  Additionally, the purchasing power of minimum wage varies by location, which is why several states have increased their minimum wages above the federal minimum wage (United States Department of Labor, 2018b).

In contrast to the legally prescribed federal minimum wage, living wage incorporates a variety of geographically determined expenditures such as housing, transportation, childcare, food, and healthcare.  According to Dr. Amy Glasmeier and colleagues at the Massachusetts Institute of Technology (2018), it represents the minimum employment earnings required to cover a family’s fundamental needs based on geographically specific information and family composition (e.g., taxes).  It should be noted that, for any given region, there are numerous living wage values representing the minimal amount of income necessary given different familial arrangements (e.g., living alone; two working adults; one working adult with one child).

Occupational Health

Investing in employee health and well-being is an ongoing process that creates reciprocal benefits for both individuals and organizations (Grawitch, Gottschalk, & Munz, 2006).  Previous research suggests that there are significant costs associated with a lack of investment in employee health (Cooper, 1994).  Thus, it is beneficial for organizations to invest in employee health and well-being.  One way in which organizations can begin to do so is by examining fairness of hourly wages.

Occupational health psychology is an applied discipline that incorporates aspects of I-O psychology with several domains outside of psychology, including public health, human resources, medicine, and safety (Adkins, 1999).  The overall goal is to decrease stress and psychosocial risk factors in both work and life domains to increase employee well-being and organizational effectiveness while controlling healthcare costs and decreasing absenteeism and accidents (e.g., Donatelle & Hawkins, 1989).  A source of work and life stress for many individuals is not having adequate wages to meet life demands (e.g., raising a child, living in a city).  For example, approximately 62% of Americans rate money as a significant source of stress in their lives (APA, 2017).  Given that wages are such an important resource for success, the framework of OHP can be applied to examine the differences between minimum wage, actual wages, and living wage as a source of work and life stress.  This, in turn, can help in the development of prevention strategies to combat long term negative health consequences for employees.  Individuals that earn a living wage are more likely to be able to afford health-related necessities compared to those that earn the minimum wage.

Methods

Our initial efforts to examine the potential state-level deficit between minimum wage and living wage were focused on compiling publicly accessible data made available by the United States Department of Labor.  Specifically, minimum wage data were collected from the Wage and Hour Division Consolidated Minimum Wage Table (2018a) and the National Conference of State Legislatures (2017).  Data regarding hourly means and medians were sourced from Occupational Employment Statistics (USBLS, 2016).  The data related to health and well-being that were used in our analyses were published by the Centers for Disease Control and Prevention (2016).  Using the Living Wage Tool provided by Dr. Amy Glasmeier and MIT (2018), an hourly living wage for one adult was collected for each state in the U.S. and Washington D.C.  All of the data employed in our analyses can be found using the links provided in the references section of this article. To better visualize the potential differences in our variables of interest, the authors utilized the data visualization platform, Tableau Desktop, Professional Edition (10.5.2).  Additional analyses were completed in Microsoft Excel and SPSS.

Results

Table 1 provides information regarding the living wage, minimum wage, mean hourly wage, and median hourly wage for each state.  Additionally, Table 1 provides information regarding the difference between the living wage and minimum wage for each state.  The top five states with the highest discrepancy between living wage and minimum wage were Georgia, Virginia, Hawaii, Maryland, and the District of Columbia.  For each of these states, the difference was equal to or greater than $5.61.  Interestingly, the District of Columbia also has the overall highest living wage of $17.11.  Those with the smallest discrepancy between living wage and minimum wage were Arizona, Washington, South Dakota, Nebraska, and Arkansas.  For each of these states, the difference was equal to or less than $1.88 with the living wage for these states ranging from $10.03 to $12.28. Table 2 shows significant correlations between wage data and health outcomes. The difference between median wage and living wage is negatively correlated to both average physically and mentally unhealthy days. The median wage for each state is higher than the living wage. This indicates that the higher median wage is in comparison to living wage, both mentally and physically unhealthy days decrease.

Table 1
Living Wage and Minimum Wage Across the United States

Reported minimum wage rates are from 2017. *Indicates that additional factors are involved in the determination of the states’ required minimum wage (e.g., size of organization).

Source: Minimum wage data was adapted from the U.S. Department of Labor, Wage and Hour Division Consolidated Minimum Wage Table (2018a) and U.S. Department of Labor, National Conference of State Legislatures (2017). Living wage data was obtained through MIT’s Living Wage Calculator (Glasmeier & MIT, 2018). Hourly means and medians were obtained through the U.S. Department of Labor, Occupational Employment Statistics (2016).

Table 2
Correlations Between the Difference in Median Wage and Living Wage and Health Outcomes

      Note. *p < .05; **p < .001

Figure 1 illustrates differences between states in the discrepancy between living wage and minimum wage.  Each state is color coded based on its discrepancy between living wage for one adult and the state mandated minimum wage.  Darker shades indicate a greater difference between living wage and minimum wage.  Most states that have a higher living wage also have a higher state mandated minimum wage in comparison to the federal minimum wage.  When comparing living wage and minimum wage to the median wage for each state, the median hourly income for each state is higher than the reported living wage (see Table 1).

Figure 2 shows the difference between median wage and living wage by state with darker colors indicating a greater difference.  The difference was computed by subtracting living wage from median hourly wage.  A greater difference (i.e., darker shade) indicates median wage is higher than living wage.  All state median hourly wages were above the reported state level living wage.

In comparison, Figure 3 and Figure 4 show the mean number of physically unhealthy and mentally unhealthy days reported by individuals 18 and older.  Darker shades indicate more unhealthy days, on average.  As indicated by the pattern of shades on each figure, as median wage declines, both average physically and mentally unhealthy days appear to increase.  Additionally, as the difference between median wage and living wage increases, both average physically and mentally unhealthy days appear to decrease.

Conclusion

As illustrated by the data, deficits exist between states’ minimum wage and the market-based living wage.  Considering the potential cumulative impact of such deficits over time, living wage research should be an area of interest in the fields of I-O psychology and OHP.  The preliminary analyses that we conducted sought to inspire such an interest by presenting the various wages and making a comparison with both physical and mental health variables. Furthermore, our correlation analyses indicate a relationship between earning a living wage and both physical and mental health. With regard to future research, several areas should be explored.  Specifically, future research should seek to understand the effects of such deficits in terms of performance, engagement, and well-being.  This can be done through a mixed-method approach using both quantitative and qualitative data.  For example, how does earning a living wage affect an employee’s level of engagement or organizational commitment?  In addition, researchers should seek insights regarding how management can influence stakeholders to buy into the provision of a living wage, and how the context within which such wages are delivered has an impact.  Additionally, we based our analyses on the living wage for a single adult.  However, only 45.2% of Americans are single adults (United States Census Bureau, 2017).  Future research can examine similar comparisons with different types of family units.  For example, a single mother of two children earning a minimum wage income would have to work 140 hours a week to earn a living wage for her family (Nadeau & Glasmeier, 2016).  In addition, 50% of individuals in each state make below the median hourly wage.  Accordingly, it is important to also look at the individual occupations earning below a living wage.

There is also an opportunity to contribute to policy development and legislation through an increased awareness regarding the potential negative effects of insufficient wages.  Specifically, the federal minimum wage law should be reexamined in relation to individual health given the potential negative effects that are likely to manifest at the societal level if individuals are not earning a sufficient wage to meet their basic needs.  As research suggests, healthy workplace practices can lead to financial benefits for the organization as well as physical, mental, and emotional health benefits for the employees (Grawitch et al., 2006).  Thus, the fields of I-O psychology and OHP should seek to contribute to the advocacy for the fair treatment of individuals.  We can use our expertise to help organizations establish healthy workplace practices.  Doing so will help to create positive outcomes for individuals, organizations, and society.

With regard to limitations, we utilized cross-sectional aggregated data obtained through several different sources.  Given the limitations due to the nature of our data, future research should examine relationships between individual wages and health outcomes over time.  Although wages should not be manipulated, it is likely that wages will change over time based on a variety of factors (e.g., new job, relocation).  Health outcomes can be monitored alongside wage changes to better understand the relationship between wages and health outcomes.  Additionally, ecological correlations should be interpreted with caution given that different effects may exist at the individual level (Robinson, 1950).  Furthermore, we used difference scores to examine the relationship between median wages and living wages by state. Polynomial regression may be a better method for examining congruence between two variables predicting a third variable (Edwards & Parry, 1993). Future research should examine individual level relationships between wages and health outcomes using polynomial regression. Finally, while we attempted to match the data based on the year in which the information was collected, some of the data differ by a year.    

In conclusion, the concept of living wage has received little attention in the fields of I-O psychology and OHP.  Through its potential contribution to health and well-being, living wage may have an impact on employees’ motivation and performance at work.  Thus, the current article sought to expand the awareness on the topic of living wage by comparing data from several difference sources.  Although the current article focuses on aggregated data, future research should address the topic through the lens of psychology and illuminate the potential impact that earning a living wage can have on the workforce by examining relationships between wages and health outcomes at the individual level. 

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