On providing a living wage in developing countries.
By Nabil Haque (Clean Energy Alternatives, Inc., Bangladesh)
The living wage debate has been ongoing for many years and is impacted by the rising income inequality in most countries. This summary highlights some of the complexities in providing a living wage in developing countries.
Minimum Wage vs. Living Wage
A statutory minimum wage and living wage have the same principal objective for workers – to ensure that they earn a sufficiently high wage to enable the worker and his/her family to afford an acceptable standard of living. Statutory minimum wages are set by governments based on industry, locality and other influencing factors.A minimum wage is set through a political process (e.g. by parliament in a democratic country, or related ministry) and so has to take into consideration competing criteria, interests, and power bases. Taking advantage of the “race to the bottom” dynamic, countries with minimum wages often set wages lower than might be determined by an open labor market to attract foreign investment. Minimum wages that meet a living wage standard are seen as a possible barrier to investment.
In contrast, the setting of a living wage – while not immune from political interests and power – is mainly based on the needs and living costs of workers and their families. It envisions that workers and their families should afford a basic and decent lifestyle that is acceptable to the society at its current level of economic development. However, there has been no generally accepted definition of what a living wage is or agreed methodology on how to measure it. The problems of definition and measurement are often cited as the two main reasons for multi-national corporations and small companies to not implement this wage system. For companies that do not own their factories it can be even more difficult to undertake the living wage initiative further down their supply chain.
Methodologies
Developing country methodologies typically estimate living costs by summing estimates for two expenditure groups: food costs and non-food costs. High-income country methodologies, in contrast, estimate costs for more expenditure groups.
Use of only two expenditure groups, as in typical developing country methodologies, is problematic because:
- It risks estimates of non-food costs becoming a large black box where errors can be important.
- The assumptions made to determine non-food costs simplify real vulnerabilities workers face, which are time- and place-specific.
- Methodologies for developing countries generally do not estimate city- or area-specific living wages. This is especially a problem for large developing countries where differences in living standards and living costs between large cities, small cities, and rural areas may be greater than in high-income countries.
- The ratio between non-food and food costs differs across development levels and improves over time as a country develops.
Developing a common system in wage determination among countries faces other difficulties in measurement. There is a lack of an equivalence scale owing to the size of the household and assumption on the number of working individuals in households. Provision of publicly provided services – health-care, education and even rationed food in some countries – vary widely. Consideration of bonuses (i.e., related to holidays or festivals) and non-wage benefits are a challenge to factor in to determinations.
A Way Forward
A practical way to ensure living wage determination works is through a management system rather than a set methodology. Management systems such as Social Accountability International (SAI) ensure that a bargain mechanism is in place and help establish worker rights.
During a certification and audit process, a company typically has to demonstrate that it is paying the minimum wage and has a system in place to work towards a living wage. Proactive follow up and action from buyers can ensure wages are fair and responsibly implemented and ensure that no action by buyers (i.e. last minute changes in design with no increase in reimbursement, a rush to production that requires overtime work, etc.) contribute to an unfair squeeze on the manufacturer. In cases of negligence and violation of code of conduct, a management system can provide action steps for improvement and outline specific criteria for loss of contracts.
Establishing a living wage is best accomplished through negotiations between management and unions. Dialogue between management and workers provides the context for considering all factors that impact workers lives in a particular circumstance and the priorities that matter most.
Note: Examples of other management systems working towards a living wage include the Ethical Trading Initiative (ETI) code, the Global Organic Textile Standard (GOTS), the Clean Clothes Campaign (CCC), and the Maquila Solidarity Network. Complexities in each country can challenge the efforts to create a living wage. A Fair Wear Foundation study in 2010* found that the minimum wage in China set by the provinces underestimated living costs by approximately half when considering rent, food, and child-related expenses. According to S. M. Channa,** living wage in India is an assessment of the needs that a human is visualized to have. However, the definition of social personhood varies based on the culturally defined social positions (caste, etc).
*Fair Wear Foundation (FWF) (2010). Wages in China still fall short of living wages.
**Channa, S. M. (2010). What do people live on? Living wages in India. Anthropology of Work Review. Vol. 31. No. 1
