You will be redirected back to your article in seconds
Skip to main content

What Really Constitutes a Fair Living Wage?

Organizations and brands have been bandying about the term “fair living wage,” and seeking or making promises to pay one to workers. The problem is, no one has a concrete definition for the term, and putting the just payment into place has made little progress.

During a Fair Wage Tutorial at the Ethical Sourcing Forum last week, Alex Katz, senior manager of research and stakeholder relations for Social Accountability International (SAI), attempted to expound on the idea for a group of curious companies.

Katz presented this living wage definition: a living wage is remuneration received for a standard work week by a worker in a particular place sufficient to afford a decent standard of living for the worker and his/her family.

But what exactly constitutes “decent?”

Ninety percent of countries have minimum wage laws, but many aren’t followed or simply don’t guarantee enough funds, Katz said.

Living wage gained awareness in 2013 and has increased in the last two years. According to Katz, 2014 brought more activism around the idea, and this year, that action should be implemented.

The biggest problem is calculating what a living wage is. Multiple methodologies with different purposes create different wage estimates, and the concept is considered too subjective and un-scalable, Katz explained.

And the best answer for calculation, according to Katz, is to use the Anker Living Wage methodology.

The Anker model is a comprehensive method for gathering objective data on cost of living by visiting workers’ homes and the markets they frequent. Richard Anker, a retired International Labour Organization (ILO) economist who wrote the ILO’s review of living wage, and wife Martha Anker, a retired World Health Organization (WHO) statistician, developed the method.

Related Stories

A decent standard of living, according to the Ankers, includes adequate food, water, housing, clothing, education, healthcare and other essential needs like provision for unforeseen events.

To determine a living wage for rural Dominican Republic, researchers went into the country, visited the local bodegas to price out the things workers buy, determine the costs of decent housing (housing that should be able to withstand natural elements), and any other expenses deemed necessary for local life.

Katz said the Anker method solves some of the confusion surrounding calculation by being transparent, enough for a decent lifestyle for a family, locally specific, reliable, adjusted annually, widely accepted and based partly on primary data.

The Anker methodology has so far been used to estimate a living wage in pilot studies for the Dominican Republic, South Africa, Malawi and Kenya, and researchers are currently being sought to carry out estimates in Brazil, China, Ethiopia, Ghana, India, Mexico, Tanzania and Vietnam. The calculations take roughly 21 days to conduct and the cost per estimate is 10,000 euro ($10,871).

“The Anker methodology provides widespread consensus around an objective measure, one definition, one methodology,” Katz said. “And the methodology is locally specific but globally scalable and incorporates in-kind benefits as partial payment of a living wage.”

Seven social and environmental standard-setting organizations including Fairtrade International, Forest Stewardship Council (FSC), GoodWeave, Sustainable Agriculture Network/Rainforest Alliance (SAN/RA), Social Accountability International (SAI), and UTZ Certified are working together in an ISEAL Alliance-facilitated Living Wage Group to implement a methodology to calculate living wages and to promote proper payment for workers.

One of the biggest roadblocks to a living wage, according to Katz, is the retail industry practice of calculating mark-ups as a percentage of the price quoted at a previous step.

And some retailers have just been hard-pressed to pay more for labor.

Paying a living wage will be a process. One company Katz engaged with said if it increased labor cost by $1.73 per unit, the cost at retail would escalate to an unreasonable price. Getting to paying all workers a true fair living wage will be a gradual process and a mindset shift for companies.

“It’s not practical to pay a living wage tomorrow,” Katz said.

Next steps for the Living Wage Group include working on a living wage methodology manual, hosting living wage estimate calculation workshops and launching a living wage estimate online database for a wide range of nations.