A Calculation of the Living Wage

Checked for accuracy on 5/6/2022; Numerical values are consistent with living wage 2021 estimates published on 5/12/22

While the minimum wage sets an earnings threshold under which our society is unwilling to let families slip, it fails to approximate the basic expenses of families in 2021. Consequently, many working adults must seek public assistance and/or hold multiple jobs to afford to feed, clothe, house, and provide medical care for themselves and their families.

Establishing a living wage and 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, the living wage might also free up resources for savings, investment, and the purchase of capital assets (e.g., provisions for retirement or home purchases) that build wealth and ensure long-term financial stability and security.

An analysis of the living wage (as calculated in December 2021 and reflecting a compensation being offered to an individual in 2022), compiling geographically specific expenditure data for food, childcare, health care, housing, transportation, and other necessities, finds that: The living wage in the United States is $24.16 per hour, or $100,498.60 per year in 2021, before taxes for a family of four (two working adults, two children), compared to $21.54, or $89,605.51 in 2020.

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 more than two full-time minimum-wage jobs (a 98-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 make a living wage. A single mother with two children earning the federal minimum wage of $7.25 per hour needs to work 235 hours per week, the equivalent of almost six full-time minimum-wage jobs, to make a living wage.
Across all family sizes, the living wage exceeds the poverty threshold, often used to identify needs. State minimum wages provide for only a portion of the living wage. For two adult, two children families, the minimum wage covers 59.8% of the living wage at best in Washington and 29.9% at worst in Wisconsin. This means that families earning between the poverty threshold ($26,500 for two working adults, two children on average in 2021) and the living wage ($100,989 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.

Figure 1: State Average Living Wage Before Taxes, with Poverty Threshold and Minimum Wage Comparisons by Family Composition.

The cost of childcare and transportation for families with children exceeds all other expenses. The following bar chart displays 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 childcare and another 17.8% on housing. Faced with tradeoffs, a second working adult must earn at least $17,603 on average to cover childcare costs and other increased expenses when they enter the workforce.

Figure 2. Living Wage Expenditures for a Family of Four (Two Adults and Two Children) After Taxes.

The living wage varies based on the cost of living and taxes where families live. The following box and whisker plot indicate the income that four families (with two working adults and two children) in the four census regions need to get by. Families in the North ($110477.80) and West ($101720.90) have higher average costs of living and therefore require higher living wages before taxes than families in the South ($ 96406.83) and Midwest ($97486.78). We extend a thin line up above the bar within each region to indicate the range of variation among states in the respective areas and the cost of living by region. The most significant variation is between Southern states, where the living wage ranges from $83,896.68 in Tennessee to $123,766.10 in DC.

Figure 3: Range of State Incomes by Region (Boxplot measures from the 25th to 75th %ile and displays median).

In most metropolitan areas, the cost of living is generally higher than in suburban and rural areas. Over the last three decades, job growth has been increasingly concentrated in cities. The living wage in urban areas is higher than the national median. Consistent with overall regional variation, of the most populated 100 metropolitan areas, Boston ($133,557), San Francisco ($147,922), and San Jose ($149,014) have the highest living wages for the typical family of four, before taxes.

Figure 4: Metropolitan Areas with the Highest and Lowest Living Wages for a Family of Four (2 working adults, two children), before taxes

The living wage varies based on the cost of living and taxes where families live. The following box and whisker plot indicate the income that four families (with two working adults and two children) in the four census regions need to get by. Families in the North ($110477.80) and West ($101720.90) have higher average costs of living and therefore require higher living wages before taxes than families in the South ($ 96406.83) and Midwest ($97486.78). We extend a thin line up above the bar within each region to indicate the range of variation among states in the respective areas and the cost of living by region. The most significant variation is between Southern states, where the living wage ranges from $83,896.68 in Tennessee to $123,766.10 in DC.