What is a living wage?
A living wage is an income for work that is sufficient to satisfy the basic needs of an employee and his/her family. This means that the worker gets enough money to pay for sufficient food, housing, clothing and other indispensable services such as transportation, healthcare, and children’s education. The part of the income to pay for these ‘other’ indispensable needs is also known as ‘discretionary’ income, because it is at everyone’s own discretion how this part of the wage will be used. Thus for families with children education will have priority. But for childless workers expenses for healthcare, leisure, or transport may be more important. Hence the term ‘discretion’: everyone should have the choice to spend part of their income in whatever way they like, i.e. at their own discretion.
Living wage as a basic human right
To earn a living wage, the employee should not be required to work excessively long hours. A living wage should be earned during normal working hours. What is considered ‘normal working hours’ however varies across countries? Yet, international organizations such as the ILO who foster decent work standards, advise that a ‘normal’ working week should not exceed 48 hours. But living wage can also vary over time. It can rise not only with inflation (continuous rise in prices over time), but also with economic progress of a country.
The World Bank, the OECD, the ILO and the United Nations acknowledge living wage to be a fundamental human right. Each individual who works for a living should have a right to an income that secures him/her and his/her family a decent living standard, in terms of food, housing, clothing, health, education and means to get around.
Responsibility for the living wage
The international community agrees on and supports the principle that everyone who is working should earn a living wage. However, living wages are not put down in national law and therefore not legally enforceable. The law does not have to come in however, since it is also in the well understood interest of employers to pay living wages. Workers who earn enough for a decent life are more self confident. They are happier in their work, their productivity is higher, and they are more dedicated to their employer. Employers who understand these advantages commit themselves to paying living wages as part of their corporate social responsibility.
Living wage and minimum wage
What is the difference between living wage and minimum wage? The living wage is in most cases higher than the minimum wage. The minimum wage is legally set in countries that have such a regulation enforced by law (there are some countries without a minimum wage). In the countries with a legal minimum wage, employees should be paid at least this minimum.. By contrast living wage is not laid down in the law. It is a recommendation to achieve decent living standards. But whether an employee earns a wage enough for a decent living depends on a number of factors. These factors vary across countries: e.g. the cost of labour, unemployment levels, entrepreneurial culture of social responsibility, the willingness and ability to pay fair wages for honest work.
Living wage and poverty line
How does living wage relate to poverty in a country? The living wage is meant to secure the worker and his/her family a decent living standard. A living wage should at least keep the employee and his/her family out of poverty. This standard of course varies across countries. Given all this variation, it is neither possible nor practical to try and calculate the exact margin between living wage level and poverty line. Living wage is a moral imperative and an income for work done. The poverty line is fixed as a few dollars per day and is just meant to keep people from starving, working or not, and regardless of their country.