This concept differs from the minimum wage in that the latter is set by law and may fail to meet the requirements of a living wage. It differs somewhat from basic needs in that the basic needs model usually measures a minimum level of consumption, without regard for the source of the income.
Pope Leo first described a living wage in such terms as could be generalized for application in nations throughout the world. Rerum Novarum touched off legislative reform movements throughout the world eliminating child labor, reducing the work week, and establishing minimum wages.
- * "If a worker receives a wage sufficiently large to enable him to provide comfortably for himself, his wife and his children, he will, if prudent, gladly strive to practice thrift; and the result will be, as nature itself seems to counsel, that after expenditures are deducted there will remain something over and above through which he can come into the possession of a little wealth. We have seen, in fact, that the whole question under consideration cannot be settled effectually unless it is assumed and established as a principle, that the right of private property must be regarded as sacred. Wherefore, the law ought to favor this right and, so far as it can, see that the largest possible number among the masses of the population prefer to own property." (#65)
- * "Wealthy owners of the means of production and employers must never forget that both divine and human law forbid them to squeeze the poor and wretched for the sake of gain or to profit from the helplessness of others." (#17)
- *"As regards protection of this world’s good, the first task is to save the wretched workers from the brutality of those who make use of human beings as mere instruments for the unrestrained acquisition of wealth." (#43)
- *"Care must be taken, therefore, not to lengthen the working day beyond a man’s capacity. How much time there must be for rest depends upon the type of work, the circumstances of time and place and, particularly, the health of the workers." (#43)
- Rerum Novarum, Pope Leo XIII, 1891
In the United States, the state of Maryland and several municipalities and local governments have enacted ordinances which set a minimum wage higher than the federal minimum for the purpose of requiring all jobs to meet the living wage for that region. These ordinances often only apply to certain types of businesses, such as those receiving government contracts. However, San Francisco, California and Santa Fe, New Mexico have notably passed very wide-reaching living wage ordinances.(The city of Chicago, Illinois also passed a living wage ordinance in 2006, but it was vetoed by the mayor.) Living wage laws typically cover only businesses that receive state assistance or have contracts with the government.
This effort began in 1994 when an alliance between a labor union and religious leaders in Baltimore launched a successful campaign requiring city service contractors to pay a living wage. Subsequent to this effort, community advocates have won similar ordinances in cities such as Boston, Los Angeles, San Francisco, and St. Louis. In 2007, there were at least 140 living wage ordinances in cities throughout the United States and more than 100 living wage campaigns underway in cities, counties, states, and college campuses.
In Australia, the 1908 Harvester Judgment ruled that an employer was obliged to pay his employees a wage that guaranteed them a standard of living which was reasonable for "a human being in a civilised community," regardless of his capacity to pay. Justice Higgins established a wage of 7/- (7 shillings) per day or 42/- per week as a 'fair and reasonable' minimum wage for unskilled workers. The judgment was later overturned but remains influential. In 1913, to compensate for the rising cost of living, the basic wage was increased to 8/- per day, the first increase since the minimum was set. The first Retail Price Index in Australia was published late in 1912. The basic wage system remained in place in Australia until 1967. It was also adopted by some state tribunals and was in use in some states in the 1980s.
In the United Kingdom, many campaigning organisations have responded to the low level of the National Minimum Wage by asserting the need for it to be increased to a level more comparable to a living wage. For instance, the Mayor of London's office hosts a Living Wage Unit which monitors the level needed for a living wage in London (which has considerably higher living costs than the rest of the UK). Other organisations with an interest in living wage issues include the Living Wage Campaign, and the Church Action on Poverty and the Scottish Low Pay Unit. The Guardian newspaper columnist Polly Toynbee is also a major supporter of the campaign for a living wage. The charity London Citizens is campaigning for a living wage to be implemented across London.
Critics argue that basic economic theory suggests a mandated minimum price for labor, a "living wage," is harmful to low-wage workers and increases unemployment. Artificially fixing a price for labor above the market price causes a decrease in the overall demand for labor, leading to increased unemployment and a deadweight loss. Workers who lose their jobs would not receive the living wage. Furthermore, such wage increases can cause inflation, increasing the cost of living and decreasing the relative buying power of the living wage, which leaves the minimum wage earner no better off.
Critics of living wage ordinances assert that the government should not intervene in the marketplace because even well intentioned interventions are usually detrimental to the economy as a whole. Further, the society-wide benefit of reducing poverty becomes mainly the responsibility of those who hire the least educated, least experienced, least skilled and most vulnerable workers.
The cost of a living wage also varies within and between countries. Controversy over exactly how much a living wage should be in any particular place could be used as an excuse not adhere to that wage. Appropriate financial penalties would help enforce compliance.