Scandinavian furniture store Ikea recently announced it will adopt a new, higher wage structure at its U.S. stores in 2015. The company says its average hourly minimum wage will go up to $10.76, an increase of 17 percent. That's big news, but there was a footnote to that announcement that's worth pausing on.
In this new wage structure, Ikea's lowest wages will be based on something called the MIT Living Wage Calculator. How did one MIT professor's research project become a tool that will affect the wages of thousands of American workers?
The story begins with Amy Glasmeier, a professor of economic geography and regional planning at MIT. Glasmeier is the kind of person who, when she goes on a trip somewhere, is less likely to head to the tourist attractions and more likely to drive to a grocery store where she can squint at price tags to figure out what it costs to live there. Checking out local listings for apartments is also a favorite pastime.
These travel hobbies of hers have to do with one question: Why do certain places have such high poverty rates when others do not?
In her travels and her research, Glasmeier has found that places with higher poverty are often ones where lots of the available jobs pay minimum wage, a wage that she says "absolutely was not paying people enough to live on."
How the Living Wage Calculator works
So what would be enough to live on? That would of course depend on where someone lived, and how much that place costs. And so Glasmeier rounded up some of her best graduate students to create, basically, a giant spreadsheet. They loaded it up with the best regional data available, from government and industry surveys, on costs for housing, food, child care, medical expenses, and transportation. (Plus a category called "other," which includes a modest budget for things like clothes, cleaning supplies and toiletries.)
The spreadsheet adds all these costs up, divides by the number of hours a person typically works in a year, and spits out the hourly rate that, according to all these calculations, an individual must earn to support him or herself (and a family—the wages are adjusted by household size), working full-time.
The "living wages" the calculator produces are not "middle class" wages, cautions Glasmeier. They wouldn't cover a trip to Hawaii once a year or saving for retirement. The living wage is, as she defines it, just enough to pay bills for the necessities of life and not fall behind.
No longer an obscure tool
Since Glasmeier created her calculator, it has had its fans, from policy wonks to unions to the occasional small-business owner. But it was still a relatively obscure tool until one day a few weeks ago, when Glasmeier got a phone call from a reporter, informing her that Ikea was planning to use it to set its own internal minimum wage.
"We truly do see this as the right thing to do for taking care of our co-workers," says Rob Olson, the acting president for Ikea U.S. "An opportunity to increase coworker loyalty, decrease turnover, as well as being able to attract more and more qualified applicants."
Olson says it would be too complicated to pay people different wages based on household size, so Ikea's going to stick with what the Living Wage Calculator comes up with for a single person with no children. (In other words, the lowest wage the calculator offers). Still, starting in January, the minimum hourly pay for an Ikea worker in an expensive suburb of Washington, D.C. will be $13.22 an hour. Over in Pittsburgh, where cost of living is much lower, Ikea's minimum hourly rate will be lower too — $8.29 an hour. But even that is still a dollar more than the federal minimum wage.
Olson says Ikea found out about the MIT Living Wage Calculator through consultants and he didn't know much about who was behind the actual tool.
That's just fine with Glasmeier. With all the political debates over where to set the minimum wage right now, she thinks the anonymity of the tool in some funny way actually makes people feel better.
"As if it was just an MIT robot, somewhere in a closet, crunching the numbers on a daily basis," she says.
Of course, The MIT Living Wage Calculator is not a number-crunching robot in a closet. But you can see why the objectivity the name suggests could make it more attractive to businesses large and small.
Not long ago the calculator caught the attention of Artillery Riewaldt, who owns two Jimmy John's sandwich shops in rural Illinois. Riewaldt says he used to pay all his employees minimum wage. Then, one day, a few years ago, a worker mentioned he was looking for a second job because he couldn't make ends meet.
"It's very difficult knowing that you have a good living for yourself, working right next to someone every day who's trying very hard and helping you grow that business, and knowing that they can't survive the bumps that come up in life," he says. "An employer always needs to make the decision: how much is too much for me at the expense of them?"
Riewaldt says when he found the Living Wage Calculator one night doing research on Google, it felt like a relief. "It's as far as I can tell political-free — it is actual data trying to decide what is that line that has to be met in order to live and be OK."
As politics-free and data-driven as the calculator may be, it is still made by humans, who have to choose the data and update it. On a professor's research budget that can only happen so often, says Glasmeier. Her calculator is currently based on data from 2010, inflated to 2012. Meaning it doesn't reflect more recent rises in cost of living.
In fact, after Ikea announced it was going to be using the MIT Living Wage Calculator, Professor Glasmeier emailed the company.
First, she thanked Ikea for raising wages. "But then I also told them that we were going to have an update," she says. "And the update was going to have a wage that was going to be higher than the one they were using."
She says the update will be published in September.
For now, Ikea says it will stick with the older, lower calculations, but will reevaluate annually.