A living wage is defined as the minimum income necessary for a worker to meet their basic needs. This is not the same as a subsistence wage, which refers to a biological minimum, or a solidarity wage, which refers to a minimum wage tracking labor productivity. Needs are defined to include food, housing, and other essential needs such as clothing. The goal of a living wage is to allow a worker to afford a basic but decent standard of living through employment without government subsidies. Due to the flexible nature of the term "needs", there is not one universally accepted measure of what a living wage is and as such it varies by location and household type. A related concept is that of a family wage – one sufficient to not only support oneself, but also to raise a family.

The living wage differs from the minimum wage in that the latter can fail to meet the requirements for a basic quality of life, which leaves the worker to rely on government programs for additional income. Living wages have typically only been adopted in municipalities. In economic terms, a minimum wage is a price floor for labor created by a legal threshold, rather than a reservation wage created by price discovery. The living wage is one possible guideline for determining a target price floor, while a minimum wage is a policy to enforce a chosen price floor.

In the United Kingdom and New Zealand, advocates define a living wage to mean that a person working 40 hours a week, with no additional income, should be able to afford the basics for a modest but decent life, such as food, shelter, utilities, transport, health care, and child care. Living wage advocates have further defined a living wage as the wage equivalent to the poverty line for a family of four. The income would have to allow the family to "secure food, shelter, clothing, health care, transportation and other necessities of living in modern society". The definition of a living wage used by the Greater London Authority (GLA) is the threshold wage, calculated as an income of 60% of the median, and an additional 15% to allow for unforeseen events.

Living wage campaigns came about partially as a response to Reaganomics and Thatcherism in the US and UK, respectively, which shifted macroeconomic policy towards neoliberalism. A living wage, by increasing the purchasing power of low income workers, is supported by Keynesian and post-Keynesian economics, which focuses on stimulating demand in order to improve the state of the economy.

"It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country."

The concept of a living wage, though it was not defined as such, can be traced back to the works of ancient Greek philosophers such as Plato and Aristotle. Both argued for an income that considers needs, particularly those that ensure the communal good. Aristotle saw self-sufficiency as a requirement for happiness which he defined as, 'that which on its own makes life worthy of choice and lacking in nothing'. As he placed the responsibility in ensuring that the poor could earn a sustainable living in the state, his ideas are seen as an early example of support for a living wage.

"Everyone who works has the right to just and favourable remuneration ensuring for himself and for his family an existence worthy of human dignity."

The evolution of the concept can be seen later on in medieval scholars such as Thomas Aquinas who argued for a "just wage". The concept of a just wage was related to that of just prices, which were those that allowed everyone access to necessities. Prices and wages that prevented access to necessities were considered unjust as they would imperil the virtue of those without access.