Paying a Living Wage - The Impact

There is a lot of conversation around the living wage and its positive impacts as well as its challenges. That’s why we want to talk about it!

A living wage is more than just a concept; it possesses the potential to create meaningful change in people’s lives. It provides individuals and families with the means to meet their essential needs, such as housing, food, and transportation. When organizations implement a living wage, they show their commitment to fairness and social responsibility.?

How is it calculated? A Living Wage is the hourly rate required for two working parents to meet the basic needs of a family of four. The family of four is the most common family size and the Living Wage for this family is a fair proxy for other family sizes and single adults. A living wage is not the same as the minimum wage, which is the legislated minimum all employers must pay and is set by the provincial or state government. The living wage reflects what people need to earn to cover the actual costs of living in their community, and draws on community-specific data to determine the expenses. Living wage employers voluntarily decide to pay a living wage and maintain their certification as new rates are calculated for their area.

The journey to becoming a living wage employer is not without its challenges. Below are some key obstacles faced by organizations in North America and potential recommendations for those considering this transformative step.

1. Discrepancy between living wage rates and minimum wage rates: In high-cost-of-living areas, such as New York City, Los Angeles, Toronto and Vancouver, the living wage rates can significantly exceed the minimum wage rates. This discrepancy poses a considerable challenge, requiring careful evaluation and adjustments to pay structures to ensure compliance with the new standards.
2. Living wages vs. market rates: Certain job roles, traditionally associated with minimum wage positions, face unique challenges when aligning living wages with market rates. Retail salespersons and food service are some examples of where the market typically pays closer to minimum wage and below the living wage rate. Organizations have to look at affordability and pay relative to other roles to assess their ability to commit to paying a living wage.
3. Pay compression: Implementing a living wage requires adjustments to entry-level rates, which makes the pay gap to a higher-level position smaller. Therefore, organizations will often make additional pay adjustments for higher-level positions to support career progression and internal equity. Organizations must consider the potential cost implications and budget accordingly.

Research on the economic impact of living wages shows mixed outcomes. Setting living wage rates has been found to increase wages for those who remain employed, but it can also reduce employment opportunities for the lower-skilled workers. Making informed decisions and finding the right solution for your organization is crucial to ensure positive outcomes for both employees and the organization.

To become a living wage employer, organizations must evaluate their specific goals and competitive environment. Professional services organizations with higher entry-level positions may find it relatively inexpensive to achieve a living wage. However, companies competing for employees in traditionally minimum-wage roles may face sustainability challenges unless their profit margins can accommodate the additional labour cost.

Becoming a living wage employer may not be the ultimate goal for every organization. All organizations can embrace the principles that living wage sets out to achieve. For example, investing in training for entry-level positions can also empower individuals to acquire the skills necessary to progress into living-wage paying jobs. There are opportunities to uplift individuals and families and promote a culture of fairness and transparency in the workplace by evaluating your compensation and total rewards practices to contribute to the well-being of your employees and the community at large.

White & Gale Consulting Inc. Laura Gale