The term living wage is one that is hotly debated among many circles. In truth, it simply means earning enough money to be able to maintain a normal standard of living. A simple enough definition and one that many feel is a basic human right.
Every day we are faced with a reality that contradicts everything we’re being told, that the average American worker is getting ahead due to the “fastest wage growth since 2009.”
So why do they keep saying that? Why are the charts showing one thing and our lifestyle and annual income showing another?
There are many cogs in the machine so let’s break down a few and see where the disconnect is coming from.
With the unemployment rate dropping to 3.9% and hourly wages showing an increase of 2.8% (for regular non-management employees) it makes it seem like there is nothing but good news on the job front.
Technically, the reports are correct. It is getting better, but there are things those reports are not using in their calculations.
Yes. The hourly earnings did rise 2.8% but according to the National Bureau of Labor Statistics, so did the cost of living. In fact, it rose by 2.7%.
You can see how the average American is not able to make headway as a rise of 2.8% in wages is wiped out by the 2.7% cost of living increase. Couple that with inflation and everything remains the same.
But wait, don’t economists account for inflation in their reports? Not exactly.
Sure they know about inflation and how it affects other areas of the economy, but when it comes to wage growth, they consider it a non-issue. Ask the average American however if it’s an issue and the answer is a resounding YES!
Quality Vs. Quantity
To combat these stagnant situations people are on the hunt for second and third jobs to make ends meet. This is where they turn to the gig economy.
Some think that the gig economy is a magic cure for the paycheck to paycheck blues. A side hustle or primary gig where they have full control and can make more money they could imagine.
The sad thing is they more often than not find out that the gig economy is not all that it’s cracked up to be. You can have multiple jobs, but if they are not quality jobs that pay a living wage, you could find yourself worse off than when you started.
Part of the issue is that with the unemployment rate low the Federal Reserve decides to raise the interest rates and then those in moderate-low income brackets are left spinning their wheels. Just because people are working does not mean they’re making enough to survive the day to day let alone another interest rate hike.
Are we doing better than we were in the recession? Yes, but to make actual progress, the Fed needs to listen to the average U.S. worker who is currently living on what they consider a “liveable wage.”
Gig Economy and Poverty
Companies like Uber have created ways for people to earn an extra living in their spare time, but let’s look at what that actually looks like for the average worker.
One thing to keep in mind is that most of the data that we have to base these reports on may or may not include the expense of those working in a gig position.
Driving an Uber can be a great way to make ends meet on paper, but in looking at the actual numbers, you would have to work in a well-populated area to be able to earn enough for it to be considered a well-paying job.
According to a study done by researchers at MIT 74% of these drivers make less than the minimum wage clocking in at only $3.37 an hour before taxes are deducted. There is a minimum wage, and there is a poverty wage, and this falls well below the poverty wage calculation.
In a gig economy, you also run the risk of there being more workers than there are jobs. It can be feast or famine, and if this is your primary source of income, then it’s like walking a tightrope without a net.
Sure you can deduct a lot of your expenses off on your taxes however working in a gig economy you are thought of as a small business owner so the amount you are taxed changes possibly putting you right back into that poverty level.
Unemployment dropping is a great thing, and it should continue; however, with that needs to come to an adjustment to the base salary of employees. Studies show that annual salary is the most valued item when it comes to their employment.
Mary Ann Sardone works with Mercer’s North America Rewards states that “By continuing to hold the line on salary increase budgets, they risk losing their top performers to competitors.”
By raising the base salary, you are not only helping out your employees, but you will find that you get workers who are more productive and focused. While it may be an investment at first, in the long run, you will find that doing so can save your company money as there will be less employee turnover and a higher performing workforce.
A company losing all of its best employees will hurt more financially than paying them a living wage.
So how do you know if you’re making a living wage, a moderate wage or a below poverty wage?
Where Do You Land?
Normally you can tell just by looking at the checkbook where you land on the liveable wage scale, but there is another way to see just how close to poverty wage you fall.
One thing we must take into consideration when looking at the wage income gap is to look at our individual locations. Every region has its own set of issues that must be taken into consideration.
Thankfully the wonderful folks at MIT have created a liveable wage calculator that can help you pinpoint where your annual income falls based off of your state and county.
This eye-opening chart uses the cost of typical expenses in your area to help business owners and decision makers to know what is a liveable wage and what is not.
Employers and The Wage Gap
Some believe that the price of inflation you feel is solely based on your own personal spending habits but these beliefs are not entirely true. For you to feel the benefit of the 2.8% increase, you would have to have no transportation or housing cost this past year, and even then it’s possible to have still felt the pinch.
When looking at comparison graphs over the past few decades, the numbers are staggering in that they haven’t changed much at all.
According to the Pew Research Center while the average hourly wage has changed drastically when inflation is taken into consideration an hourly pay of $4.03 paid in January of 1973 would have the same effect as $ 23.68 would in today’s market.
That’s a pretty bleak outlook for an economy that is supposed to be providing more of a living wage.
So why are employers not budging on base pay raises? Some say it has to do with the rising cost of benefit coverage. From healthcare costs to retirement, there are benefits to every business that are not accounted for in your take-home pay.
As these costs rise, companies are not as quick to offer higher salaries as it would eat into profits. So the average worker is left stuck with an annual household income that is between low income and poverty level.
What Does It All Mean
Feeling like your hands are tied is one of the worst feelings. It hurts emotionally, psychologically and can cause a drain on your health.
While the situation can be frustrating, it’s not all bad you just have to know what you’re working with. Studies have shown that low wage workers take everything in stride. They do their jobs and are thankful to have a paycheck at all.
They see the wage gap as so much more than annual income inequalities they see it as the powerful versus the powerless. They stay silent because they feel or have been told that they can be replaced.
It’s this mentality, that keeps people trapped.
We need to have the confidence to know that we can make a change. With more info at our fingertips than any other previous generation, we need to educate ourselves in the process.
Be The Change
From the 1960s to the 1980s there was a sharp decline in the average hourly wage. There were periods where wages were being cut drastically until the American people said enough.
It was then that they took to the polls and made a change for the better, and that is what we should do.
We are heading into a big election season and now is the time to make your voice heard. The decision makers are listening and they are ready to take action.
When looking at your research make sure to follow our page to stay on top of the latest money trends and let us help you find a solution to the annual income wage gap.