Living Wage (Fair Wage)

Definition

The term living wage refers to a rate of pay that allows an employee to maintain a standard of living which meets their basic needs.  Since the cost of living varies by geography, what is considered a living wage is location dependent.

Explanation

Also referred to as a fair wage, a living wage is an hourly rate of pay that allows a worker to maintain a standard of living that provides for their most basic of needs.  The hourly rate of pay does not have a predefined calculation, and what is considered a fair wage will depend on public policy.  Two examples of a good working definition would be something like the following:

  • An hourly rate of pay that allows an employee working forty hours each week to pay for shelter, utilities, transportation, clothing, healthcare, food, and minimal recreational expenses.
  • An hourly rate of pay that allows a family of four with two parents working forty hours each week to pay for their family's shelter, utilities, transportation, clothing, healthcare, food, and minimal recreational expenses.

The calculation of living wages usually does not allow for any type of savings.  For example, the worker would not be able to pay for their child's education, fund a retirement account, or repay any outstanding debts.  Fair wages are also not the same as minimum wage, which is set by law.  Minimum wages oftentimes fail to meet an individual's basic needs, and families rely on other government programs to supplement their income.

Related Terms

cost-of-living adjustmentfederal minimum wagebase salary, wage deflation