What is a Living Wage?
While there is no universally agreed definition of a living wage as a concept or universally accepted amount that defines such remuneration, almost all living wage descriptions and definitions incorporate the idea that a living wage is “the remuneration received for a standard workweek by a worker in a particular place sufficient to afford a decent standard of living for the worker and her or his dependents. Elements of a decent standard of living include food, water, housing, education, health care, transportation, clothing, and other essential needs including provision for unexpected events”. This definition has been agreed upon by the Global Living Wage Coalition. The UN Global Compact SDG Ambition on Living Wage calls on businesses to pay all their employees — regardless of their employment status — a living wage.
Why Refer to Living Wages and Not Minimum Wages?
Minimum wages in principle establish a wage floor for all workers to ensure that their basic needs and those of their families are met. Minimum wages should be fixed through social dialogue between employers’ and workers’ organizations to take into account both the needs of workers and their families, the general level of wages in the country, the cost of living, social security benefits and the relative living standards of other social groups. Minimum wages are a rough tool, which sets the same standard regardless of the company’s ability to pay. They commonly apply across all geographical areas (despite differences in cost of living) and all sectors (regardless of a particular sector’s profit margins). Hence, they are designed to be supplemented by collective bargaining agreements, which can fine-tune the wage based on the characteristics of particular sectors, geographical regions and enterprises (e.g. productivity and competitiveness).
The push for a living wage is a response to the fact that minimum wages often fail to meet workers’ needs because of one or more of the following:
- The wage set does not take the basic needs of the workers and their families into account in the first place, typically because the Government did not consult with workers’ representatives.
- The minimum wage is not fine-tuned through collective bargaining.
- It is not enforced.
- It is not adjusted frequently enough to keep up with inflation, leading to wage erosion.
Where minimum wages are sectoral, the gender pay gap may also play a role in excessively low minimum wages in female-dominated sectors, such as ready-made garments. There is often the biased presumption that men support their families while women merely supplement family income and therefore they do not need to be paid as much.
A living wage is determined by average costs of living and it depends on assumptions regarding family size and the number of wage earners. The amount needed to provide a living wage depends on what is included and assumed in the calculation.
What is the Dilemma?
How can a company ensure that workers in their own operations and supply chains are paid a living wage, especially when countries do not have a statutory minimum wage — or the minimum wage fails to provide for a decent standard of living for a worker and her or his family?
Prevalence of Living Wages
The International Labour Organization (ILO) estimates that 90% of Member States have minimum wage legislation and some form of minimum wage for workers. However, in some cases, minimum wages do not allow for a decent standard of living. Furthermore, it is estimated that 266 million wage earners around the world are paid below the minimum wage, representing 15% of all wage earners. This demonstrates that even where minimum wage laws are in place they may not be enforced properly, or they exclude some categories of workers from legal coverage (such as workers in agriculture who are not entitled to the minimum wage).
The COVID-19 pandemic had a significant impact on wages across the world, with two-thirds of countries experiencing downward pressure on the level or growth rate of average wages according to ILO estimates. Women have been impacted by wage reductions to a much larger extent than men due to the global COVID-19 crisis.
The Business Case for a Living Wage
The lack of a living wage in supply chains not only contradicts many companies’ values, but also counteracts efforts to secure sustainable and responsible supply chains and grow consumer markets. Additionally, as more companies publicly commit to living wages, investors and stakeholders are paying increasing attention to this issue, which in turn expands the need for companies to live up to this commitment.
While ensuring the payment of living wages in supply chains is often seen as a cost, it can constitute an important investment. Beyond fulfilling a duty of care, ensuring the payment of decent wages to supply chain workers translates into an investment in human capital that can bring a range of returns. The following considerations present the rationale for businesses to take action on wages in their supply chains:
- Both companies and suppliers can achieve business benefits by embedding a living wage policy in a broader sustainability and competitiveness strategy: Companies can drive quality supply and achieve more effective risk management, as well as reputational gains, by promoting living wages in their supply chains. For example, consolidating and shortening supply chains may be necessary to living wage efforts, but can also improve trading relationships and resilience of supply. Suppliers may benefit from reduced staff turnover and absenteeism, reduced training costs, output improvements in productivity and quality, and access to higher-value markets and improved reputation.
- Achieving living wages is part of the business responsibility to respect fundamental human rights: Identifying the risk of low pay and acting to mitigate or remediate this risk is one way businesses can align with the UN Guiding Principles on Business and Human Rights (UNGPs).
- Companies can meet their commitments to a wide range of Sustainable Development Goals (SDGs): Many companies have committed to contributing positively to the SDGs. By committing to achieving living wages in supply chains, companies meet this commitment and also create broader sustainable development and human rights benefits.
Impacts on Human Rights
Poverty wages impact numerous human rights, including but not limited to the:
- Right to enjoy just and favourable conditions of work (ICESCR, Article 7 and UDHR, Article 23): Elements of this right focus on payment, wages and the provision of a ‘decent living’.
- Right of everyone to an adequate standard of living (ICESCR, Article 11 and UDHR, Article 25): The articles lay out what the UN considers to be factors of an adequate standard of living, which includes adequate food, clothing and housing. This right also includes the right to the continuous improvement of living conditions for everyone and their family. All the elements can be negatively affected by insufficient wages.
- Right to rest and leisure including reasonable limitation of working hours (ICESCR, Article 7 and UDHR, Article 24): Where wages are insufficient to provide an adequate standard of living, workers may need to work excessive hours to supplement their basic income. This could impact the worker’s quality of life, lead to low productivity, increase the risk of health and safety violations and potentially impact mental and physical health.
- Right of protection of the family (ICESCR, Article 10, ICCPR Article 17 and UDHR Article 23): Workplace practices may hinder the ability of a worker to adopt a healthy work-life balance, including where wages are insufficient to provide an adequate standard of living and workers are required to work excessive hours in order to supplement their income. The failure to receive a living wage may also impact a worker’s ability to provide adequate care for their family, including with regard to childcare, food and accommodation.
- Right of protection for the child (ICESCR, Article 10.3 and ICCPR Article 24 and UDHR, Article 25): Inadequate wages may compromise the ability of parents to provide necessary protection to their children — including adequate food, healthcare and shelter. This is likely to be a particularly acute issue in areas where public child welfare systems are poor or non-existent.
- Right to health (ICESCR, Article 12 and UDHR, Article 25): Given that many of the countries in which living wages are likely to be a particular issue are unlikely to have strong or easily accessible public health systems, inadequate wages are likely to have an impact on the health of employees and their families. Healthcare can form a significant part of any person’s income, with workers on low wages forced to ration the health products and services they purchase.
Sustainable Development Goals (SDGs)
The provision of a living wage directly and indirectly enables several SDGs. In particular, wages are an accelerator for achieving the following goals and targets:
- Goal 1 (“End poverty in all its forms everywhere”)
- Goal 5 (“Achieve gender equality and empower all women and girls”)
- Goal 8 (“Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”), Target 8.8: Protect labour rights and promote safe and secure working environments of all workers, including migrant workers, particularly women migrants, and those in precarious employment
- Goal 10 (“Reduce inequality within and among countries”), Target 10.4: Adopt policies especially fiscal, wage, and social protection policies and progressively achieve greater equality
- Goal 2 (“End hunger, achieve food security and improved nutrition and promote sustainable agriculture”)
- Goal 3 (“Ensure healthy lives and promote well-being for all at all ages”)
- Goal 4 (“Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all”)
- Goal 6 (“Ensure availability and sustainable management of water and sanitation for all”)
- Goal 7 (“Ensure access to affordable, reliable, sustainable and modern energy for all”)
- Goal 9 (“Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation”)
- Goal 11 (“Make cities and human settlements inclusive, safe, resilient and sustainable”)
- Goal 17 (“Strengthen the means of implementation and revitalize the global partnership for sustainable development”)
The following resources provide further information on how businesses can provide and promote living wages in their operations and supply chains:
- United Nations Global Compact, Achieving the Living Wage Ambition: Reference Sheet and Implementation Guidance: The UN Global Compact SDG Ambition on Living Wage provides illustrative details regarding the steps to take to successfully implement a living wage programme to ensure 100% of employees across the organization earn a living wage.
- United Nations Global Compact, Improving Wages to Advance Decent Work in Supply Chains: This interactive microsite highlights lessons learned and best practices from companies and organizations on tackling low pay in supply chains, and provides guidelines on concrete steps companies and their suppliers can take to improve wages globally.
- United Nations Global Compact, Living Wage Analysis Tool: This free, user-friendly and strictly confidential online tool helps companies identify actions and further opportunities to provide a living wage to ensure all workers, families and communities can live in dignity.
- IDH, The Sustainable Trade Initiative, Roadmap on Living Wages: IDH is working to secure living wages through the Roadmap on Living Wages. This platform works to strengthen international alignment and to build tangible solutions regarding living wage.