A living wage is the minimum income required for a worker to meet their basic needs. This is not the same as a subsistence wage, which refers to a biological minimum, or a solidarity wage, which refers to a minimum wage tracking labor productivity. Needs include food, housing, and other essentials such as clothing. The goal of a living wage is to allow a worker to afford a basic but decent standard of living through employment without government subsidies. Due to the flexible nature of the term "needs", there is not one universally accepted measure of what a living wage is and as such it varies by location and household type. A related concept is that of a family wage – one sufficient to not only support oneself, but also to raise a family.
The living wage differs from the minimum wage in that the latter can fail to meet the requirements for a basic quality of life, which leaves the worker to rely on government programs for additional income. Living wages have typically only been adopted in municipalities. In economic terms, a minimum wage is a price floor for labor created by a legal threshold, rather than a reservation wage created by price discovery. The living wage is one possible guideline for setting a target price floor, while a minimum wage is a policy that enforces a chosen price floor.
In the United Kingdom and New Zealand, advocates define a living wage to mean that a person working 40 hours a week, with no additional income, should be able to afford the basics for a modest but decent life, such as food, shelter, utilities, transport, health care, and child care. Living wage advocates have further defined a living wage as the wage equivalent to the poverty line for a family of four. The income would have to allow the family to "secure food, shelter, clothing, health care, transportation and other necessities of living in modern society". The definition of a living wage used by the Greater London Authority (GLA) is the threshold wage, calculated as an income of 60% of the median, and an additional 15% to allow for unforeseen events.
Living wage campaigns emerged in part as a response to Reaganomics and Thatcherism in the US and UK, respectively, which shifted macroeconomic policy towards neoliberalism. A living wage, by increasing the purchasing power of low income workers, is supported by Keynesian and post-Keynesian economics, which focuses on stimulating demand to improve the state of the economy.
History
The concept of a living wage, though it was not defined as such, can be traced back to the works of ancient Greek philosophers such as Plato and Aristotle. Both argued for an income that accounts for needs, particularly those that ensure the common good. Aristotle saw self-sufficiency as a requirement for happiness, which he defined as, 'that which on its own makes life worthy of choice and lacking in nothing'. As he placed the responsibility in ensuring that people with low incomes could earn a sustainable living in the state, his ideas are seen as an early example of support for a living wage.
The evolution of the concept can be seen later on in medieval scholars such as Thomas Aquinas, who argued for a "just wage". The concept of a just wage was related to that of just prices, which were those that allowed everyone access to necessities. Prices and wages that prevented access to necessities were considered unjust as they would imperil the virtue of those without access.
In Wealth of Nations, Adam Smith recognized that rising real wages lead to the "improvement in the circumstances of the lower ranks of people" and are therefore an advantage to society.( 1976). An Inquiry into the Nature and Causes of the Wealth of Nations. Growth and a system of liberty were the means by which the laboring poor were able to secure higher wages and an acceptable standard of living. Rising real wages are secured by growth driven by increased productivity, with stable price levels (i.e., prices unaffected by inflation). A system of liberty, secured through political institutions, where even the "lower ranks of people" could secure the opportunity for higher wages and an acceptable standard of living.
Based on these writings, Smith advocated that laborers should receive an equitable share of what they produce. For Smith, this equitable share amounted to more than subsistence. Smith equated the interests of labor and land with overarching societal interests. He reasoned that as wages and rents rise, as a result of higher productivity, societal growth will occur, thus increasing the quality of life for the greater part of its members.
Like Smith, supporters of a living wage argue that the greater good of society is achieved through higher wages. It is argued that the government should, in turn, seek to align the interests of profit-seeking actors with those of labor to produce societal benefits for the majority. Smith argued that higher productivity and overall growth led to higher wages, which in turn led to greater benefits for society. Based on his writings, one can infer that Smith would support a living wage commensurate with overall economic growth. This, in turn, would lead to greater happiness and joy for people, while helping keep families and individuals out of poverty. Political institutions can create a system of liberty that ensures individuals have opportunities for higher wages through increased production, thereby fostering stable growth for society.
According to Seth Rockman, an 1831 campaign by Baltimore seamstresses may have been the first use of the phrase "living wage" as a political slogan in America.
In 1891, Pope Leo XIII issued a papal bull entitled Rerum novarum, which is considered the Catholic Church's first expression of support for a living wage. The church recognized that wages should be sufficient to support a family. The church has widely supported this position since that time. It has been reaffirmed by the papacy on multiple occasions, such as by Pope Pius XI in 1931 Quadragesimo anno and again in 1961, by Pope John XXIII writing in the encyclical Mater et magistra. In Laborem exercens (1981), Pope John Paul II wrote, "Hence in every case a just wage is the concrete means of verifying the whole socioeconomic system and, in any case, of checking that it is functioning justly."
Contemporary thought
Different ideas on a living wage have been advanced by modern campaigns that have pushed for localities to adopt them. Supporters of a living wage have argued that a wage is more than just compensation for labour. It is a means of securing a living, and it leads to public policies that address both the level of wages and their decency. Contemporary research by Andrea Werner and Ming Lim has analyzed the works of John Ryan, Jerold Waltman, and Donald Stabile for their philosophical and ethical insights on a living wage.
John Ryan argues for a living wage from a rights perspective. He considers a living wage to be a right that all labourers are entitled to from the 'common bounty of nature'. He argues that private ownership of resources precludes access to them by others who would need them to maintain themselves. As such, the obligation to fulfill the right to a living wage rests on the owners and employers of private resources. His argument goes beyond that a wage should provide mere subsistence but that it should provide humans with the capabilities to 'develop within reasonable limits all [their] faculties, physical, intellectual, moral and spiritual.' A living wage for him is 'the amount of remuneration that is sufficient to maintain decently the laborer'.Werner, A. and Lim, M., 2016. The ethics of the living wage: A review and research agenda. Journal of Business Ethics, 137(3), pp.433-447.
Jerold Waltman, in A Case for the Living Wage, argues for a living wage not based on individual rights but from a communal, or 'civic republicanism', perspective. He sees the need for citizens to be connected to their community and thus views individual and communal interests as inseparably bound. Two major problems that are antithetical to civic republicanism are poverty and inequality. A living wage is meant to address these by providing the material basis that allows individuals a degree of autonomy and prevents disproportionate income and wealth that would inevitably lead to a societal fissure between the rich and poor. A living wage further enables political participation by all classes, which is necessary to prevent the political interests of the rich from undermining the needs of the poor. These arguments for a living wage, taken together, can be seen as necessary elements for 'social sustainability and cohesion'.
Donald Stabile argues for a living wage based on moral economic thought and its related themes of sustainability, capability, and externality. Broadly speaking, Stabile indicates that economic sustainability may require that people have the means for 'decent accommodation, transport, clothing and personal care'. He qualifies the statement as he sees individual necessities as contextual and therefore able to change over time, between cultures, and under different macroeconomic circumstances. This suggests that the concept and definition of a living wage cannot be made objective over all places and in all times. Stabile's thoughts on capabilities directly reference Amartya Sen's work on the capability approach. The tie-in with a living wage is the idea that income is an important, though not exclusive, means for capabilities. Enhancing people's capabilities enables them to function better both in society and in their roles as workers. These capabilities are further passed down from parents to children. Finally, Stabile analyses the lack of a living wage as the imposition of negative externalities on others. These externalities take the form of depleting the workforce through 'exploiting and exhausting the workforce'. This leads to economic inefficiency as businesses end up overproducing their products due to not paying the full cost of labour.
Other contemporary accounts have taken up the theme of externalities arising from the lack of a living wage. Muilenburg and Singh see welfare programs, such as housing and school meals, as being a subsidy for employers that allow them to pay low wages. This subsidy, taking the form of an externality, is of course paid for by society in the form of taxes. This thought is repeated by Grimshaw, who argues that employers offset the social costs of maintaining their workforce through tax credits, housing, benefits, and other wage subsidies. The issue was raised during the Democratic party primary election of 2016 in the United States, when presidential candidate Bernie Sanders mentioned that "struggling working families should not have to subsidise the wealthiest family in the country", and therefore, implied that the large retailer Walmart, who is owned by the wealthiest family in the country, was not paying fair wages and was being subsidised by taxpayers.
Those in favor of living wage ordinances primarily research the negative impacts of insufficient minimum wages. In a cross-comparison between minimum wage and living wage ordinances, there are profound psychological impacts to living wage implementations. Those in favor of living wage-oriented policies assert that it is important to acknowledge the region-specific costs that are severely lacking in minimum wage measurements. This line of thinking argues that a living wage can both enhance engagement and performance if implemented.
Implementations
Australia