For many mission-driven organizations, compensation decisions have long been grounded in market data and internal equity. If your salary ranges were competitive with peer organizations and felt consistent across roles, you were likely doing what responsible employers were expected to do.
That approach is no longer enough.
Across the country, the cost of living has risen faster and more unevenly than wages, creating a widening gap between what the labor market pays and what people actually need to survive. As a result, organizations are confronting a difficult reality: employees can be paid “at market” and still be unable to afford basic necessities.
This shift has moved a once-theoretical concept into the center of compensation strategy. Living wage is no longer a values-adjacent conversation. It is becoming a structural requirement for recruitment, retention, equity, and long-term sustainability.
A living wage is the minimum income required for a full-time worker to meet basic needs in a specific geographic area without relying on additional jobs or public assistance. Those needs typically include housing, food, transportation, healthcare, and often childcare, which has become one of the fastest-growing cost drivers for many working adults. According to the Living Wage Calculator developed by the Massachusetts Institute of Technology, a living wage is calculated based on these essential expenses to ensure a household can remain self-sufficient.
A living wage is often confused with minimum wage or competitive pay, but they are not the same:
In many regions, including high-cost areas like New York City and the Bay Area, living wage estimates far exceed minimum wage levels set by states or the federal government. These estimates underscore that being above the poverty line does not automatically translate to economic stability.
It is also important to note that not all living wage calculations reflect the same standard of living. Some calculations align more closely with survival, hovering just above the poverty line, while others account for participation in community life, modest savings, and stability. These distinctions matter when organizations define what fairness looks like in practice.
This gap is not theoretical. It is showing who can afford to stay in these jobs and who cannot.
Historically, organizations relied on the cost of labor to design compensation structures. Cost of labor answers a straightforward question: What does it cost to hire and retain talent for a specific role in the current market? This benchmarking methodology has long been considered the least volatile and most defensible approach for setting salary ranges and hourly rates.
Cost of living, by contrast, reflects the real-world expenses people face. It includes housing, food, transportation, healthcare, and childcare, all of which can shift rapidly due to inflation, housing shortages, or regional demand.
For many years, the cost of labor and the cost of living moved in parallel. But that alignment has broken down.
Since the pandemic, cost-of-living increases have outpaced wage growth across much of the country. In metros like New York City, the Bay Area, and other high-density cities, housing costs alone have pushed many working adults well beyond what market-aligned hourly rates can support.
This is not a motivation problem. It is an affordability problem. People are not leaving mission-driven work because they lack commitment. They are leaving because full-time employment no longer guarantees a life above the poverty line. When staff can earn more in private-sector hourly roles than in mission-critical nonprofit work, compensation becomes a matter of survival.
Historically, organizations avoided anchoring pay to the cost of living because of volatility. Temporary spikes pose a risk, and salaries cannot easily be reduced. What is different now is persistence. In many regions, cost-of-living increases have not evened out. They need to become the new benchmark.
This is the moment where living wage shifts from a conceptual ideal to a compensation strategy imperative.
The growing gap between the cost of labor and the cost of living does not affect all workers equally.
It disproportionately impacts low-wage, entry-level, and frontline roles, positions often filled by people from historically marginalized communities. In nonprofit, education, and community-based NGOs, these roles are essential to service delivery but have long been undervalued by the labor market.
As living costs rise, many frontline employees’ homes are also being pushed farther away from the communities they serve. When staff can no longer afford to live near where they work, long commutes become the norm. Over time, those commutes compound burnout, limit flexibility, and make already demanding roles unsustainable. This geographic displacement is one way rising cost-of-living pressures contribute to gentrification and quietly undermine employee retention.
From an equity perspective, this is also a human rights issue. The International Labour Organization (ILO) and other global institutions have long emphasized that access to decent work and a decent standard of living should not be mutually exclusive. Organizations like the Global Living Wage Coalition and frameworks such as the Anker methodology reinforce the idea that wages should support basic dignity, not just legal compliance.
In response, more organizations are introducing living wage floors into their compensation structures.
A living wage floor does not replace market-based pay. Instead, it acts as an additional safeguard. After job levels and salary ranges are designed, organizations ask a critical question: At any point in this structure, does pay fall below what it takes to meet basic living needs in this geography?
This sequencing matters. Living wage comes after a sound compensation structure has been built, not before. It is a lens applied on top of midpoints and ranges to ensure no employee falls below a minimum standard of economic stability.
If an organization can only make one compensation change, focusing on bringing frontline and entry-level staff up to a living wage is often the most meaningful place to start. These roles are closest to service delivery and most vulnerable to rising costs.
Implementing a living wage floor requires thoughtful modeling. For example, if a job level has a midpoint of $45,000 but the local living wage is $50,000, the solution is not simply to raise individual salaries. The midpoint of that job level—and potentially the levels above it—must be adjusted to preserve appropriate spacing between ranges. Without this step, organizations risk manufacturing compression, in which promotions yield minimal pay increases, and employees begin to question whether advancement is worth it.
Decisions about living wages are rarely simple to make internally. They involve sensitive trade-offs, incomplete data, and genuine concerns about financial risk, equity, and staff trust. This is where an experienced third party can play a critical role. By modeling multiple scenarios, grounding decisions in a consistent methodology, and expanding the equity lens to include historically undervalued roles, a neutral partner helps organizations explore options safely and transparently. Leaders can see the implications, weigh trade-offs, and decide what is feasible now versus later—without turning exploratory conversations into premature commitments.
Living wage is increasingly shaped by external forces.
In 2025, Santa Fe became the first city in the U.S. to tie its minimum wage directly to local rental costs, formally linking pay expectations to housing affordability rather than a fixed national standard. Under the ordinance, wage increases are indexed to both inflation and housing costs, signaling a shift in how fair pay is being defined.
The Associated Press reports that this policy is the first of its kind in the country to explicitly link wages to housing affordability.
As with pay transparency laws, these changes are likely to spread. What begins as a localized shift becomes a broader expectation. Organizations that wait to respond may find themselves navigating more disruptive adjustments later.
Many organizations feel caught between doing the right thing for people and doing the right thing strategically. But when employees cannot meet basic survival needs, the tradeoff is false.
Organizations that fail to plan for this reality will struggle to staff essential roles. The market has long undervalued frontline work, and rising cost-of-living pressures have intensified that strain. Increasingly, organizations are relying on staff who are “swinging it” because they care deeply about the mission—an approach that is not sustainable.
Ignoring this pressure is no longer a neutral choice. Living wage is becoming a core input into compensation strategy, shaping salary structures, budgeting decisions, workforce planning, and long-term organizational sustainability.
As organizations enter annual budgeting and salary planning cycles, living wage considerations are becoming a core planning input rather than an external concern. Integrating living wage into annual salary planning allows organizations to move beyond reactive fixes and instead evaluate compensation holistically.
Cost of living presents a two-part challenge: what employees earn and what they must spend, particularly on housing. Addressing only one side may allow people to survive, but not to thrive.
Cost of living presents a two-part challenge: what employees earn and what they must spend. Addressing only one side may allow people to survive, but not to thrive.
Based on Edgility Talent Partner’s work across nonprofit, education, and mission-driven organizations, effective annual salary planning today typically includes the following ingredients:
Taken together, these inputs help organizations plan compensation adjustments that are defensible, transparent, and aligned with both financial realities and equity commitments. Living wage is not a standalone initiative layered onto this work. It is one signal within a broader system that, when reviewed annually, allows organizations to make thoughtful, phased decisions rather than face disruptive corrections later.
Living wage is not a one-time adjustment or a single policy decision. It is a signal that many mission-driven organizations are operating with compensation systems built for a different moment. Addressing cost-of-living pressures requires more than reactive raises. It calls for a clear compensation philosophy, transparent structures, and equity-centered decision-making that can hold complexity over time.
If your organization is navigating these questions and looking for a practical, values-aligned way forward, download our free eBook, Compensation with Purpose: Designing Equity-Centered Pay Structures for Nonprofits, Education, and Healthcare. It offers a deeper look at how to design compensation systems that build trust, support sustainability, and reflect the mission you serve.
Market pay reflects what similar organizations are paying for a role based on size, sector, and geography. A living wage reflects what it actually costs for someone to meet basic needs in a specific location. In many regions today, market-aligned pay does not meet living wage thresholds, particularly for entry-level and frontline roles.
Historically, the cost of living was considered too volatile to anchor compensation structures. Temporary spikes or dips created risk, since salaries cannot easily be reduced once set. For many years, the cost of labor and the cost of living moved at similar rates, making this less of an issue. What is different now is persistence. In many regions, cost-of-living increases have not stabilized or corrected, creating sustained pressure that organizations can no longer ignore.
Employees in entry-level and frontline roles are most affected, particularly in nonprofit, education, and public service sectors. These roles are disproportionately held by women and people from historically marginalized racial and economic backgrounds. When wages do not keep pace with living costs, full-time workers can still experience financial instability.
If an organization can only make one change, prioritizing bringing frontline and entry-level staff up to a living wage is often the most impactful place to begin. These roles are closest to service delivery and most vulnerable to rising costs. Even incremental movement toward a living wage floor can significantly improve retention and stability.
Organizations typically use a combination of local cost-of-living tools and market data. Common sources include the MIT Living Wage Calculator, the Economic Policy Institute’s Family Budget Calculator, and HUD’s Fair Market Rent data. These tools break down costs such as housing, food, transportation, and healthcare by geography, helping organizations understand what employees need to meet basic living standards.
It can, if not modeled carefully. Living wage floors are applied after a compensation structure is designed. If the floor exceeds the midpoint of a lower job level, organizations may need to adjust adjacent ranges to preserve meaningful differentiation between roles. This is why living wage decisions should be made as part of broader compensation design, not as isolated fixes.
In some regions, yes. Cities like Santa Fe have begun tying minimum wage requirements directly to housing costs, signaling a shift toward cost-of-living–based regulation. Even where laws do not yet apply, these changes influence labor markets and employee expectations, making a living wage a strategic consideration for all employers.