Quite often, employees find themselves complaining about their pay. The complaint isn’t about receiving pay – that’s something we all want and need – but that their pay doesn’t cover their living expenses.

This results in employees complaining about their employer paying “too little” or that the “pay isn’t fair” or any other sort of complaint regarding their inability to not live on their pay.

Is the pay too low?

When employees complain about their pay, what they don’t realize is that their complaint in of itself has no basis. The pay paid out should follow the recommended guidelines given to the employers using a number determined by legislators, or what is called “Minimum wage”.

Minimum wage

A minimum wage refers to the lowest wages that an employer is legally required to pay their employees.

Minimum wage is determined by our respective government, and should generally depend on the overall economic condition.

Minimum wage, however, doesn’t adjust for inflation. And unfortunately, what “overall economic condition” means is also largely based on the governments interpretation of the data, rather than a living economic market.

Please keep in mind that “overall economic condition” refers to the economic condition of the location, not a single employer. So employers who are doing well financially don’t have a higher minimum wage than employers who are just scraping by. A minimum wage is determined by the government for the entire location, not per employer.

To get a more accurate understanding of what it costs to live in a certain location, one must know that location’s “Living wage”.

Living wage

A living wage referst to the least possible pay that an individual is required to receive in order to sustain a basic livelihood in their location.

Living wage is based on each location and it’s cost of living; such as housing, food cost, child care, transportation, health care, and other necessities. A living wage can even be adjusted to show the needs of an individual depending on their marital status and number of children.

Living wage is adjusted to inflation, and metrics can show what part of basic necessities is the most costly to citizens of the location. There are some government bodies and NGOs that follow the living wage for most locations, but said numbers are often only used to determine the financial health of citizens, rather than to adjust the minimum wage.

Politics between the two

Understanding the difference between a minimum wage and living wage is important for all employees, as it gives an insight into how the workforce is perceived by their government.

A government that is citizen-centric and focuses on creating a good place to live for its citizens, would seek to create and maintain a healthy living arrangement for all it’s citizens and would try to keep the minimum wage as close to the living wage as possible in order to make sure that all citizens can at least afford basic necessities in their location.

A government that is employer-centric and focuses on establishing good relations with employers and the funds said employers bring to the government, would seek to maintain the minimum wage as low as possible – often well below the living wage – in order to attract more employers to their location, regardless if said employers pay the citizens enough to be able to afford basic necessities in their location.

Why does this matter

In the larger scheme of things, understanding the difference between a minimum- and a living wage simply tells the employees what to expect from employers in the location they are seeking employment in.

For an HR professional, this can be an indicator of what kind of culture one can expect within an employer within a given location.

Working from a location where the minimum wage is well below the living wage will result in a workforce that always has complaints about their physiological and basic needs, whereas working from a location where the minimum wage is close to the living wage will results in a workforce that offers input and ideas in how to better fulfill their psychological needs and how to reach self-fulfillment.