A living wage is the minimum income needed to afford basic necessities (e.g., housing, transportation, food). Living wages benefit:
The worker and their family: Improved health, morale, and support for healthy child development, reduced social barriers and financial stress
Local economies: Increased buying power for workers
Government: Reduced public assistance expenditures
Employers: Increased retention, morale, and productivity; reduced absenteeism
The Problem
The federal minimum wage hasn’t kept up with the cost of living since the late 1960s. In fact, the earnings of a minimum-wage worker with a family of four fall well below the poverty line. Today, despite “entering employment” being counted as a positive outcome, current government employment programs are not leading to living wage jobs—especially for Latinx and Black participants.
To compensate for a lack of federal action, many states and cities have created living wage policies, which mandate or incentivize wages that are high enough to allow workers to meet their basic needs (i.e., “living wages”). However, of the millions of public employment program participants such as those in Workforce Innovation and Opportunity Act (WIOA) services, many are placed in low-wage jobs that still require them to make use of government assistance or borrow funds from friends, family or other sources to make ends meet.
Data from adults using WIOA services from April 2019 through March 2020 show that Latine and Black participants placed in jobs after receiving services earned annual wages of $26,460 and $22,552, respectively, compared to $27,540 for white workers. All of these wages are below the comparable 2019 median wage of $34,248 and below the living wage levels established by MIT’s Living Wage Calculator.
The Solution
Workforce, economic development and human services agencies can promote living wages through the hundreds of millions of dollars in federal wage subsidies they provide to employers each year. This intervention provides an overview of how to develop a living wage requirement within a wage subsidy program such as on-the-job training (OTJ) contracts funded by the Workforce Innovation Opportunity Act (WIOA), subsidized employment funded by Temporary Assistance for Needy Families and wage subsidy programs funded through community development block grants (CDBGs). Important considerations in making any change in subsidy programs include:
Reviewing wage trends in the existing market to determine if, upon completion of the training program, the individual will be able to command a similar wage in the market and is thereby set up for success. While subsidies can be used to create incentives for employers to increase wages in full-time positions, this is not guaranteed. Larger changes are driven by a wide variety of market and affordability considerations.
Examining how changes in income may affect access to benefits. Individuals face a benefits cliff (also known as the “cliff effect”) when they receive public benefits from the government, earn a raise, and then discover that they make too much money to receive the benefits but are not yet making enough money to sustain themselves and their households. Consider a plan to educate local leaders on how changes in thresholds would be a more supportive structure for workers.
Considering whether a tiered structure for wage subsidies may be necessary to accommodate transitional job programs, which provide temporary wage-paying jobs, support services and job placement help to individuals who have difficulty getting and holding jobs in the regular labor market.
Note: Agencies can also use living wage ordinances through public procurement and purchasing departments.
Recommended actions can help workforce and economic development agencies advance strategies to finance their job quality strategy for the long term.