Sustainability & The Living Wage

Living Wage posterIn My Primer: Economics 101, I shared several economic principles taught to me by my family and our surrounding community. I ended with the question, “What are some principles that might help us in building a sustainable economy?” Well the first principle I want to discuss is something called the living wage.

“Living wage refers to the minimum hourly wage necessary for a person to achieve a basic standard of living. In the context of developed countries such as the United Kingdom or Switzerland, this standard is generally considered to require that a person working forty hours a week, with no additional income, should be able to afford housing, food, utilities, transport, health care and a certain amount of recreation.”

Source: Wikipedia

What is the case for the Living Wage?
What are the costs?

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?

The Costs of the Living Wage

The cost of strategies such as living wage campaigns are born primarily by small to medium sized businesses. And guess which businesses are more likely to be locally owned? And although most large business absorb the increases by raising prices or accepting lower profit levels, some small business, especially those with under a 100 employees are forced to replace high-skilled workers. So although the employment levels looked good overal in areas where living wage ordinances were passedl, and in some cases employment levels even improved, it was also true that some high skilled jobs were lost. Most ordinances, however, do exempt employers below a certain size, in Santa Fe business with fewer than 25 employees were exempted. In this way some protection was offered for the smaller family owned shops. However, we need to remember that local ordinances that ensure living wages primarily affect local merchants.

Even given these concerns, it still makes economic sense overall to raise minimum wages. We just need to do more than just raise wages. As several business groups have rightly pointed out, the real problem is not wages so much as escalating housing and healthcare costs. Larger businesses absorb the cost of living wage ordinances, primarily, because they can either simply make up for the loss in other locations or spread the price increases over a larger base. Small and medium sized businesses do not have the ability to absorb costs as readily, and many are already vulnerable to the low price strategies of big box stores such as Wal-Mart. Conversely, housing subsidies and universal healthcare are strategies whose costs are born by all taxpayers. Modest increases in minimum wages in concert with housing subsidies and universal health care would go along way toward actually changing the economic landscape for poor families without over burdening already struggling local businesses.

So what role does living wage play in developing survivable communities? Well as we saw above, it can adversely affects local businesses and merchants, our neighbors. So we need to be cognizant of how they will bear the brunt of any change in minimum wage levels; and we, as a result, need to commit to spending more of our money with those local businesses. Fair enough, right?

But no discussion of living wage is truly complete if we overlook our individual role as employers and contracting agents. We need to also pay, at a minimum, the living wage level, to all domestic help. Raising the wages of domestic workers targets the most economically vulnerable portion of the workforce. Similarly in our organizations and community groups, as well as within non-profits, we need to make a commitment to supporting a living wage for all staff positions. Again, we need to support our neighbors.

And finally we need to make a commitment to pay all artisans, musicians and clergy, at a minimum, at a level commiserate with living wage levels. This means we try to purchase software, music, books, and art instead of just copying it or downloading it from the Internet for free. This means we pay people for the services they provide instead of forcing them into a form of intellectual servitude.

It is a different mind set, but given how most of us can see how clearly a living wage is essential for people to lift themselves out of poverty, it is sometimes daunting to see how we as individuals can also affect people lives in much the same way, one on one. How much do you pay your baby-sitter, your maid, or the man who cuts your grass? How much do you pay to hear a local band perform, or contribute to your local church to pay the minister’s salary? How much are you willing to pay to hear a local writer speak or take class from a noted printmaker?

It is the same issue as the various living wage campaigns. And it is the same answer. A living wage is one that allows a person to pay for housing, healthcare, food, and transportation, and at the same time helps them to do more than merely survive. And what are we willing to do, individually or collectively, to make that vision a reality?

It is hypocritical to campaign for increases in the minimum wage if we are simultaneously unwilling to pay the higher wages ourselves. Consider this the next time you are face to face with an artist, nanny or day laborer. They too deserve to be able to afford decent housing and healthcare.

Living wages, no matter how they are computed, are part of a larger push for raising the standard of living for those amongst us who are the most vulnerable. And as such, it is one of the principles I feel is essential to building real economic sustainability.