Defining living wage and living income
A living wage is not the same as a statutory minimum wage. It is a wage that allows a worker to afford a decent standard of living for him- or herself and his or her family. The concept knows many definitions, but all widely accepted definitions, such as the one by the Global Living Wage Coalition, agree that a living wage should be enough to provide for food, water, housing, education, health care, transportation, clothing, and other essential needs, including provision for unexpected events. A living wage should be earned in a regular work week and is locally specific as it is dependent on the costs of living in a particular place.
The concept of living wage applies to hired workers who are paid a wage, for example by working in a garment factory. Self-employed workers, such as many smallholder farmers, are not paid a wage but earn an income from one or multiple income generating activities. The Living Income Community of Practice describes a living income as “The net annual income required for a household in a particular place to afford a decent standard of living for all members of that household”.
For more information about the similarities and differences between a living wage and a living income, see this infographic from our Friend of the Platform IDH.
A fundamental and enabling human right
As recognized by, among others, the International Labour Organisation (ILO) and the Organisation for Economic Co-operation and Development (OECD), the ability to generate a living wage or income is a fundamental human right. Workers who earn a living wage or income work are less likely to work excessive overtime, can meet their own basic needs and those of their families, and are able to put aside savings, thus being more likely to find their way out of poverty.
Sectors that strongly depend on manual labour (e.g. apparel and agriculture) are known for often providing wages and incomes that are insufficient to cover basic living expenses. Wages and incomes in these sectors are often on or below the poverty line, even if there is a statutory minimum wage. Consequentially, wages and incomes are even much lower than national or regional living wage and living income estimates.
Living wages and incomes are also known as ‘enabling rights’: workers with a living wage or income are more likely to send their children to school instead of sending them to work, therewith mitigating child labour and increasing children’s school rates and literacy. The apparel and footwear sector relies predominantly on female workers. Paying these women a living wage, enables them to provide for themselves, making them financially resilient and less dependent on others and male relatives. Living wages and incomes thus have the potential to positively impact on other fundamental human rights, such as a child’s right to education and gender equality.
Our duty to respect and advance living wages and incomes
By engaging on living wages and incomes, we honor our commitment to the United Nations Guiding Principles (UNGPs) and OECD Guidelines for Multinational Enterprises, wherein financials are asked to act with due diligence and to identify and mitigate salient human rights risks. In doing so, we also aim to help reduce poverty and stimulate economic growth. We perceive the platform’s engagement trajectory as a concrete contribution to advancing the United Nations Sustainable Development Goals, specifically Goals 1: ‘No poverty’ and 8: ‘Decent work and economic growth’.
The business case of living wage and living income
It is often thought that paying higher wages is inherently bad for a company or brand. However, a growing body of literature, research, and expert views is changing that narrative. In May 2022, Business fights Poverty, the University of Cambridge and Shift[1], published a research paper that clearly and effectively summed up the benefits of living wages and incomes for all – businesses, workers and society:
- Living wages offer companies the direct benefits of a more stable workforce and more resilient value chains;
- As stated above, living wages and incomes provide a powerful engine to achieve the SDGs;
- Living wages and incomes have a multiplier effect on local economies and socio-economic opportunities.
[1] Barford, A., Gilbert, R., Beales, A., Zorila, M., & Nelson, J. 2022. The case for living wages: How paying living wages improves business performance and tackles poverty. Business Fights Poverty, University of Cambridge Institute for Sustainability Leadership & Shift. DOI: 10.17863/CAM.80370 URLs: https://businessfightspoverty.org/ register-the-case-for-living-wages/ and https://www.cisl.cam.ac.uk/resources/ publications/case-for-living-wages