How to Calculate a Living Wage
To earn a wage sufficient to meet all basic needs, have a roof over one’s head, and provide for emergencies – this sounds like a given. Article 23 of the Universal Declaration of Human Rights by the United Nations states as well:
"Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity.” [1]
So far, so good. For many people, though, reality looks quite different. 647 million people worldwide [2] live in extreme poverty, yet many of them have a job. The reason for this is low wages which do not cover the living costs of families despite their hard work, forcing them to live under precarious conditions.
Who is responsible? Stakeholders along the entire value chain and purchasing companies as well. Whether it’s the fashion, agricultural, or tech industry –every single company is responsible for ensuring fair remuneration
To help companies enforce living wages along their value chains, the concept of the Living Wage was developed. In fact, low wages are not solely the result of price pressure from just a few companies. Calculating appropriate wages
By making the local requirements for ensuring an adequate standard of living
What Living Wage Means
The Global Living Wage Coalition defined what constitutes a living wage:
“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 family. 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.”[3]
How to Calculate the Living Wage
There are different methods to calculate the Living Wage. A well-known and widely established method is the Anker Method [4] by the Global Living Wage Coalition.
It works as follows: First, the total costs necessary for a dignified life are added up. This includes not only the regional costs for meeting basic needs but also provisions for unexpected events, such as illnesses. These total costs per family are divided by the number of working family members (Net Living Wage). This amount is then supplemented by taxes and deductions, which ultimately gives the (Gross) Living Wage.
Recommended by LinkedIn
Various sources are used to collect the necessary values. Local food prices and housing costs, for instance, are determined in consultation with stakeholders. Secondary data, such as national surveys or existing Living Income benchmarks, are also used to define living costs more precisely.
Since this data collection involves a lot of effort, a tool was developed to help companies determine the Living Wage in their production regions: the IDH Salary Matrix. Based on the Anker Method, it not only assists with the calculation of regional Living Wages but also checks the difference between them and the wages that are actually paid. The IDH Matrix is regularly updated to include current developments and incorporate regional Living Wage benchmarks.
Once a company has the reference values for a Living Wage in the production region, it must ensure that this wage is actually paid at all production sites. For this purpose, the paid wage is compared with the theoretical Living Wage. If the Living Wage is higher than the actual wage paid, this wage gap is closed, for example by increasing the wage or issuing food vouchers. To credibly demonstrate this implementation, the payment of the Living Wage is verified and certified by an independent auditing company.
Living Wage – A Pioneering Concept for Socially Just Supply Chains
Living Wage is a relatively young concept that has gained increasing importance in recent years, for instance in the banana sector. We are convinced that this concept has the potential to sustainably improve global value chains and make the payment of Living Wages easier and more transparent. Not only because it simplifies the calculation of necessary wages, but also because the knowledge of it holds companies accountable to pay appropriate wages.
For this reason, we, like many other companies in the industry, are working intensively to calculate and implement the Living Wage for all employees of our banana producers.