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What Factors Affect Living Wage Rates?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 20 November 2014
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Living wage rates are based on the cost of living for a specific area or region. This can include housing expenses, average consumer pricing, and related issues. In some regions, the rates are adjusted to account for benefits and inflation. Regional governments may have living wage ordinances requiring all or some employers to pay a living wage, in which case they publish the rates for the region. Another source of information can be a community agency or academic research group, which may have recommendations for employers to follow if they want to pay a living wage.

The concept of living wages is rooted in the idea that employees working a standard 40 hour per week job should be able to meet their basic needs. Living wage rates include the expense of housing, food, clothing, and health care. Minimum wages tend to lag behind, because they are not necessarily adjusted for inflation in a timely fashion. They also don’t account for differences in regional costs of living. A national minimum wage might be a living wage for people in some areas, but not others.

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Housing costs can be a significant contributor to living wage rates. Some regions have extremely expensive housing, whether people are renting or buying. Researchers may use a variety of tools to determine the expense of finding housing, including median or average housing costs, or looking at sample costs on what they consider to be reasonable housing options. Another factor is the cost of food and basic supplies like toiletries, which can be determined with the assistance of a consumer price index.

Inflation can also be a concern, as can the expense of health care. Other factors that can influence living wage rates may include transportation, child care, and similar needs. These can be more difficult to adjust for. Transportation, for example, may include cars or buses, which have different expenses. Likewise, not everyone needs childcare; some families don’t have children, while others may make private arrangements.

Basic living wage rates assume that people need to meet all their needs independently. If an employer offers benefits like health care, it may be eligible for a reduced rate because the benefits are considered part of the wage. In calculations to determine the most appropriate rate for a given region, economists may also consider what is known as a family wage. This is a related concept which reflects the costs of raising a family. At any given time, not everyone in a family will or should be working, and families need to consider expenses like saving for college and other events.

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