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What is a living wage - and why aren't people who work full-time earning it?

Despite issues like inflation and the coronavirus pandemic, experts say there are things families can do to make their financial lives a bit easier.

LOUISVILLE, Ky. — People in Kentucky are struggling to make ends meet - and it has nothing to do with their employment status. Making a "living wage" is becoming harder for many families, even ones that work full-time jobs.

Despite ongoing issues like inflation and the coronavirus pandemic, experts say there are things families can do to make their financial lives a bit easier.

What is a living wage?

Dr. Amy Glassmeier, professor of Economic Geography and Regional Planning at MIT, defined a living wage as the amount of money a person or family needs to make in order to meet their basic needs.

"The living wage is perhaps better defined as a minimum subsistence wage for persons living in the United States," she said. The difference between a living wage and the federal poverty threshold, according to Glassmeier, is that what the federal government defines as the poverty line does not account for costs outside of a basic food budget - things like child care or transportation.

To apply her research, Glassmeier created the "Living Wage Calculator," an online resource through MIT that can help people calculate how much they need to make to live comfortably in different parts of the country. 

The calculator uses geographically-specific data related to a family's likely costs for things like food, childcare, health insurance, housing, transportation and other basic necessities. It does not include things like eating out, entertainment, or investments and saving. The calculator also takes into consideration the number of people in a family and whether one or both of the adults are working full-time. 

Glassmeier said all of the data is verified through either a governmental entity or an organization that has standards.

According to Glassmeier's research, a family of four in Kentucky with both parents working full-time jobs would need to make at least $81,000 a year to meet their basic needs. Families who make less than that are forced to choose what's most important because they won't have enough money to pay for it all.

"They are faced in the most inconceivable situation of having to choose on a monthly basis what they do with the income they make, which is insufficient to cover their costs," Glassmeier said.

According to the Living Wage Calculator, here are the average costs for a family of four with two working adults in Jefferson County:

  • Child care: $16,633 per year
  • Taxes: $17,467 per year
  • Groceries: $179 per week/$9,305 per year
  • Transportation: $13,896 per year
  • Medical care/insurance: $7,771 per year
  • Housing: $10,464 per year

Glassmeier noted that Kentucky is an unusual case since it includes metropolitan cities and suburbs as well as "natural resource" regions like Appalachia, where there are fewer high-quality job opportunities.

What barriers keep people from earning a living wage?

There are multiple reasons why people are struggling to meet their basic needs, and the issues are not exclusive to Kentucky.

The coronavirus pandemic alone has caused a multitude of problems, from shutting down businesses, increasing unemployment and creating instability in the economy. Prices are soaring due to supply chain issues, which means those basic needs are getting even more expensive.

Beyond that, Glassmeier said many people are stuck in a situation where there is little opportunity to improve their circumstances. 

"The national economy is underperforming as a result of the fact that we leave people behind," Glassmeier said.

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She said around 60% of the jobs in the United States do not require a high school education. While that means more people are able to get jobs, those jobs often don't pay sustainable salaries.

Plus, if the jobs don't allow for advancement, those people can't invest, save money for the future or make adjustments in their lifestyle to find a better job.

“That’s the biggest myth is that somehow, everybody can achieve what they want," she said. "They can’t. Because if they live in a place or were born in a place where the opportunities are not present, the ability to get out of a place with that circumstance requires external resources and we are often unwilling to provide them.”

Glassmeier acknowledged that many of these issues are structural and if employers aren't willing to make changes to improve the productivity and development of their workforce, the situation won't change.

What can people do?

For families that aren't making a living wage, Glassmeier's first piece of advice is for them to reach out to public programs and resources that are available to help them.

"It's simply their right as a member of American society to take advantage of the programs that help us become productive and help us to feel safe," she said.

She said people who find themselves in this situation shouldn't blame themselves, because many times it's societal or generational causes that put them there.

Finally, she said everyone should talk to their local legislators about creating long-lasting change in their communities since they're the ones who have the most influence over what's going to happen next.

Overall, Glassmeier said she felt hopeful for the future and has been encouraged by how some employers are changing their ways to better support their employees.

"I do feel that more and more people understand the plight of the ordinary American," she said.

To learn more about the MIT Living Wage Calculator, and to see estimates for your area, click here.

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