Minimum Wage vs Living Wage
Minimum Wage and Living Wage are two Labor Economics concepts in AP Economics that students often mix up. In short: minimum wage is a minimum wage is a legal price floor on wages, the lowest amount employers may legally pay workers. Meanwhile, living wage is a living wage is the income a worker needs to afford basic necessities like housing, food, and healthcare in their area. Here is how they compare side by side.
A minimum wage is a legal price floor on wages, the lowest amount employers may legally pay workers.
Set above the market wage, it can raise pay for some workers but may cause a surplus of labor (unemployment) by reducing hiring. Its real-world employment effects are debated and depend on how high it is set.
A living wage is the income a worker needs to afford basic necessities like housing, food, and healthcare in their area.
It is usually higher than the legal minimum wage and varies by local cost of living. Living-wage campaigns argue that full-time work should keep people out of poverty.