Minimum Wage: Can an Individual or a Family Live on It?

Written by Carey Nadeau, OpenDataNation Inc. and Dr. Amy K. Glasmeier on 01/16/2016

While the minimum wage sets an earnings threshold under which our society is not willing to let families slip, it failed to approximate the basic expenses of families in 2014. Consequently, many working adults must seek public assistance and/or hold multiple jobs in order to afford to feed, clothe, house, and provide medical care for themselves and their families.

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 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 two full-time minimum wage jobs each (a 77-hour work week per working adult) to earn a living wage. A single parent with two children needs to work the equivalent of three and one half full-time jobs (139 hours per work week), more hours than there are in five days, to earn the living wage on a minimum wage income.

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 63.7% of the living wage before taxes at best in Washington and 40.2% at worst in Hawaii. This means that families earning between the poverty threshold ($24,037 for two working adults, two children on average in the United States in 2014) and the living wage ($61,336 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 housing and childcare for families with children exceeds all other expenses. In the United States, a typical family of four (two working adults, two children) spends 21% of their after-tax income on childcare and another 20% on housing. Faced with tradeoffs, a second working adult in a family with two children must earn at least $11,224 on average in order to cover the costs of childcare and other increased expenses when they enter the workforce. Single-parent families need to work almost twice as much 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 139 hours per week, more hours than there are in a 5-day week, to earn a living wage.

The living wage varies based on the cost of living and taxes where families live. Families of four (with two working adults, two children) in the North ($66,047) and West ($62,506) have higher average living wages before taxes than the South ($59,687), and Midwest ($58,871). Within region, the largest variation is between Southern states, where the living wage ranges from $54,073 in South Carolina to $84,337 in the District of Columbia.

In most metropolitan areas, where the US economy and jobs are increasingly concentrated, the living wage is higher than the national median. Consistent with overall regional variation, of the most populous 100 metropolitan areas, Honolulu ($77,632), New York ($78,667), and Washington DC ($84,206) have the highest living wages for the typical family of four.