Estimating Living Wage Globally
Martin Guzi


What is living wage?
•
•Human right (since 1919 defined by ILO)
“ultimate objective is to ensure to workers a minimum wage that will provide a satisfactory
standard of living to them and their families” •In many countries minimum wage is not a living
wage, and workers who earn minimum wage cannot afford a decent living standard. •However there is
no accepted definition of what a living wage is and no agreed methodology on how to measure it.
•Living wage as a metric of income adequacy.
•

•The Mexican Constitution (1917) states: the general minimum wage must be sufficient to satisfy the
normal necessities of a head of family in the material, social and cultural order and to provide
for the mandatory education of his children.
•The Brazilian Constitution (1988) stipulates: national minimum wage be capable of satisfying their
basic living needs and those of their families with housing, food, education, health, leisure,
clothing, hygiene, transportation and social security, with periodical adjustments to maintain its
purchasing power.

Definitions of living wage
•Global Living Wage Coalition: “A 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 her or his
family. Elements of a decent standard of living include food, water, housing, education, health
care, transport, clothing, and other essential needs, including provision for unexpected events”.
•Asia Floor Wage “proposes a wage for garment workers across Asia that would be enough for workers
to live on”.
•New Zealand defines a living wage “as the income necessary to provide workers and their families
with the basic necessities of life”.
•Campaign in Vancouver defines living wage “on the principle that full-time work should provide
families with a basic level of economic security, not keep them in poverty”.

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Image result for living wage campaign global

Living wage estimation
(Engel’s law)
Living wage calculation:
1. Calculate food expenditure
2. Estimate non-food spending using Engel’s law
3. Living wage is then the sum of food and non-food spending

 Intuitively, we need a minimum amount of food to even stay
alive; in that sense food is truly a necessity

Living wage estimation
(Anker methodology)








Living wage (minimum wage), 2016
•$20.64 (10.85) in Vancouver (livingwageforfamilies.ca)
•11.50 (9.15) EUR in Ireland (livingwage.ie)
•£8.45 (7.20) United Kingdom (livingwage.org.uk)
•£9.75 (7.20) in London
•$19.80 ($15.25) in New Zealand (livingwage.org.nz)
•1,571 EUR (1,480) per month in France
•

France – single person in private housing 2017

Living wage in the US
•US Federal poverty level is $23,050, $10.60 per hour, minimum wage of $7.20 per hour •The living
wage in the United States is $15.12 per hour in 2015, before taxes for a family of four (two
working adults)
•Example: Seattle, Washington (livingwage.mit.edu)
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http://storymaps.esri.com/stories/2015/living-wage-map/



Living Wage
•We propose a method to calculate the living wage for a large number of countries with these
characteristics:
1.Normatively based
2.Estimates sensitive to national conditions
3.Based on transparent principles and assumptions
4.Easy to update regularly
5.Estimates published online at
D:\Research\ESF\05work Slapanice - living wage\Logo living wage\LivingWageIndicator.org.jpg

Elements of living wage
•The living wage is defined as the amount of money sufficient to cover:
1.food expenses,
2.accommodation costs,
3.transport expenses,
4.provision for unexpected events,
5.mandatory contributions and taxes.
•Living wage is calculated for different household types.
•The approach is consistent with the Anker methodology used by the Global Living Wage Coalition.
•

Living wage is estimated for three household types
1.One-person household
oa baseline estimate
odirect comparison with minimum wages and real wages
2.Typical household
oa typical family with children in a given country
ouse average fertility rate to determine household size
ototal household income is earned by two parents receiving living wage
owe adjust for the gender differences in the employment rates
3.Standardized 2-adults and 2-children household
ofocuses on price variation and keeps the family composition constant
ocomparable to other living wage campaigns (New Zealand, Vancouver)
oliving wage required for the family to ensure population replacement
•

Data
•FAO food balance sheets include the national food consumption patterns in per capita units,
distinguished for about 50 food groups.
•Wage Indicator Cost-of-living survey started in January 2014.
oPrices are reported by web visitors
oPrices on 50 food items, rental prices,
public transport, education and health expenditure
oToday we have sufficient data for 54 countries
(more than 1,730,000  prices)
oHousing prices complemented from Numbeo.com
•World Bank data on fertility and employment rates.

Cost of Living Survey
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•



Food expenses
•Household food expenses are equal to the cost of a food basket valued at the current prices.
•Account for approx. 50 food groups.
•Food basket is scaled to 2,100 kcal/person/day
Handbook on poverty and inequality, World Bank 2009 •The food basket is checked whether it is
consistent with WHO balance diet.
•

FAO food balance sheet includes information on proteins in each food category. World Health
Organization (WHO/FAO, 2003) defines a balanced diet to comprise minimum 10‑15 percent of calories
from proteins; 15-30 percent of calories from fats; 50-70 percent of calories from carbohydrates
and at least 400 grams of vegetables and fruits per day.
A nutritional requirement for good health,

Food basket
Brazil
Food group
Food costs
Gram
Kcal
Price per item
Low
High
per day
per day
Low
High
Beer
25.1
35.8
119.4
42.7
7.0
10.0
Meat (pigmeat, poultry, bovine, others)
50.1
65.8
168.8
279.7
9.9
13.0
Seeds and kernels
0.0
0.0
0.0
0.6
5.0
8.0
Roots, Other
0.0
0.0
0.0
0.0
3.0
5.0
Sugar (Raw Equivalent)
11.9
18.8
104.3
273.8
3.8
6.0
Sunflowerseed Oil
0.1
0.1
0.5
5.2
4.0
5.0
Cassava and products
4.6
6.9
76.4
64.7
2.0
3.0
Oranges, Mandarines
6.2
9.3
103.0
27.8
2.0
3.0
Onions
0.7
1.1
12.4
5.2
2.0
3.0
Groundnuts (Shelled Eq)
4.1
5.7
27.1
42.1
5.0
7.0
Grapefruit and products
0.0
0.1
0.5
0.0
3.0
4.1
Citrus, Other
0.0
0.0
0.0
0.0
2.5
3.5
Rice (Milled Equivalent)
4.5
5.5
60.7
224.6
2.5
3.0
Cream
0.0
0.0
0.0
0.0
3.0
8.0
Milk - Excluding Butter
16.7
20.1
267.5
164.4
2.1
2.5
Lemons, Limes and products
0.4
0.7
7.3
1.3
2.0
3.0
Yams
0.1
0.2
1.1
1.3
4.0
5.2
Peas
0.0
0.0
0.4
1.3
3.0
4.0
Pulses, Other and products
0.0
0.0
0.4
1.3
2.6
4.0
Butter, Ghee
0.7
0.9
6.0
42.7
4.0
5.0
Apples and products
1.0
1.3
9.9
5.2
3.5
4.5
Plantains
0.0
0.0
0.0
0.0
2.0
3.0
Olives (including preserved)
0.1
0.2
0.9
0.6
5.0
9.0
Wine
1.8
2.7
3.7
2.6
16.0
24.0
Sweeteners, Other
0.0
0.1
0.7
2.6
2.0
3.0
Bananas
4.1
5.0
55.2
35.0
2.5
3.0
Maize and products
4.1
5.2
43.1
134.6
3.2
4.0
Coffee and products
1.0
1.2
5.5
2.6
6.0
7.5
Wheat, barley and cereals
11.9
22.9
99.1
258.3
4.0
7.7
Beans
3.1
3.8
29.1
97.7
3.6
4.4
Oils (soyabean, olive, palm, other)
2.7
3.6
30.3
269.9
3.0
4.0
Sweet potatoes
0.2
0.3
2.1
1.9
3.0
4.0
Tomatoes and products
3.8
4.6
36.2
7.8
3.5
4.2
Eggs
0.1
0.2
15.6
20.7
0.3
0.3
Soyabeans
1.0
1.4
6.7
12.3
5.0
7.0
Honey
0.1
0.1
0.2
0.6
10.0
15.0
Potatoes and products
2.6
3.4
34.1
22.7
2.5
3.3
Vegetables, Other
4.2
5.6
47.0
11.7
3.0
4.0
Fish products
8.5
11.3
18.8
10.4
15.0
20.0
Tea (including mate)
0.4
0.6
3.5
1.3
4.0
6.0
Total
176
244
1461
2100
169
243

Housing cost
•The cost of housing for a one-member household is approximated by the monthly rental rate for
a one bedroom apartment. •The housing cost for a family with children is derived from the rental
rate for a 3-bedroom apartment.
•The housing cost includes utility and other housing costs
•We also use large database of reported housing prices from Numbeo.com (wisdom of the crowd)
•Because the quality of housing varies largely we predict prices.

Transport costs
•Most people commute for work or travel for their daily activities (e.g. shopping). •The price of a
regular monthly public transportation pass is taken as the cost of transport.
•Children are assumed to travel for free.
•We use prices on public transportation from Numbeo.com.
•

Taxes and mandatory deduction
•WageIndicator asks respondents about their gross and net earnings. Using this information we
calculate the share of earnings spent on taxes and mandatory deductions of low income workers.
•Gross living wage is constructed using this information.

Living wage estimation
(Anker methodology)


Wages in context: Brazil
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>

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The adequacy of minimum wage for one member household
The ratio of minimum and individual living wage

•
The adequacy of minimum wage for 2+2 household
D:\temp\downloads\mapa_lw_2.png
The ratio of minimum and family living wage

All figures in national currency on a monthly basis. Data 2014-2016.



Living wage summary
•We proposed the method to calculate the living wage for the large number of countries. •The
calculation is sensitive to country characteristics
(e.g. food consumption, price variations, family composition, labor market conditions) •Living wage
could serve as an indicator of economic adequacy and a practical basis to set minimum wages. •When
information on prices is sufficient we calculate living wage for at regional level.
(currently we can estimate for 54 countries, 220 regions)
•
•

Working poor
•Growing discrepancies between wages and labor productivity growth in a large number of countries.
•Working poor with a job but at risk of poverty.
9.5 % of the working EU population was at risk of poverty in 2014.
•Properly designed minimum wages, are an effective policy tool which can provide a decent wage
floor.
•Targeted social security benefits to low-income households.
•

Minimum wage (MW)
•A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay
to workers.
•Defined and updated by politicians therefore does not reflect increases in prices.
•Supporters say MW increases the standard of living of workers, reduces poverty, reduces
inequality, boosts morale and forces businesses to be more efficient.
•Opponents say MW increases poverty, increases unemployment (particularly among low productivity
workers) and is damaging to businesses.
•

•Notes: Big Mac prices are taken from The Economists and minimum wages
are collected by Wage Indicator. The calculation assumes 173 working
hours in the month.
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Cocoa production
•Growers in West Africa receive between 3.5 to 6.4 percent of the final value of a chocolate bar.
•Many small producers struggle to sell enough to earn a sustainable income.
•Fairtrade cocoa offers farmers an opportunity to make a real living, when a Fairtrade Premium is
added to the purchase price.
•Fairtrade cocoa producers are regularly audited against the strict child labour standards
•Fairtrade certified production represents just a fraction of total production (3.5 million tons).
Fair Trade International logo Rainforest Alliance seal

http://www.fairtrade.net/typo3temp/pics/1da2c70db6.gif



Garment industry
•Factory-made clothing, sold in finished condition and in standardized sizes (ready-to-wear)
•Bangladesh’s most important industry sector with the share over 80% in total export (2014) •The
industry employs at around 80% women. (age of 19, unmarried, with little education). •Women earn
60% of their male colleagues and only 1.8% are members of union. •Week job protection and various
forms of violence, abuse and harassment.

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Bangladesh, sweatshops, sweatshop labor, sweatshop workers, forced labor, human rights, workers
rights, eco-fashion, sustainable fashion, green fashion, ethical fashion, sustainable style,
eco-friendly T-shirts, sustainable T-shirts, infographics, MacLean's
•workers receive 12 cents per shirt—or just 2 percent of the wholesale cost.

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•Comments are welcome:
•Martin.Guzi@econ.muni.cz