A Calculation of the Living Wage
On March 2, 2020, we posted new living wage data for the country, states, metropolitan areas, and counties. In general, changes in the living wage tracks the inflation rate at the national level. The inflation rate in 2019 was 1.76%. The 2019 inflation rate is higher compared to the average inflation rate of 0.90% per year between 2019 and 2020. Places like San Francisco, Boston, and Washington D.C. experienced an increase in housing costs in excess of the rate of change due to inflation.
Establishing a living wage, an approximate income needed to meet a family’s basic needs, would enable the working poor to achieve financial independence while maintaining housing and food security. When coupled with lowered expenses, for childcare and housing in particular, the living wage might also free up resources for savings, investment, and/or for the purchase of capital assets (e.g. provisions for retirement or home purchases) that build wealth and ensure long-term financial security.
An analysis of the living wage, compiling geographically specific expenditure data for food, childcare, health care, housing, transportation, and other basic necessities, finds that:
The living wage in the United States is $16.54 per hour, or $68,808 per year, in 2019, before taxes for a family of four (two working adults, two children), compared to $16.14 in 2018.
The minimum wage does not provide a living wage for most American families. A typical family of four (two working adults, two children) needs to work nearly four full-time minimum-wage jobs (a 75-hour work week per working adult) to earn a living wage. Single-parent families need to work almost twice as hard as families with two working adults to earn the living wage. A single-mother with two children earning the federal minimum wage of $7.25 per hour needs to work 138 hours per week, nearly the equivalent of working 24 hours per day for six days, to earn a living wage.
Across all family sizes, the living wage exceeds the poverty threshold, often used to identify need. State minimum wages provide for only a portion of the living wage. For two adult, two children families, the minimum wage covers 73.1% of the living wage at best in the District of Columbia and 41.1% at worst in Virginia. This means that families earning between the poverty threshold ($25,953 for two working adults, two children on average in 2019) and the living wage $68,808) on average for two working adults, two children per year before taxes), may fall short of the income and assistance they require to meet their basic needs.
The cost of childcare and housing for families with children exceeds all other expenses. In the following bar chart, we display the fractional share of income required by a family of four, two working adults and two children. On average, in each state, the typical family of four spends 21.6% of their after-tax income on housing and another 19.7% on childcare. Faced with tradeoffs, a second working adult must earn at least $11,480 on average in order to cover the costs of childcare and other increased expenses when they enter the workforce.
In most metropolitan areas, the cost of living is generally higher than in suburban and rural areas. Over the last three decades, job growth is increasingly concentrated in cities. The living wage in urban areas is higher than the national median. Consistent with overall regional variation, of the most populous 100 metropolitan areas, New York City ($93,851), San Francisco ($94,741), and San Jose ($98,240) have the highest living wages for the typical family of four, before taxes.
We will be publishing stories about the living wage across America, following the primaries and the election.
