Understanding Wages

The Living Wage:

Three types of wage standards:
Concepts & Calculations
Minimum wage – set by national law
Industry wage – prevailing wage in the
region for type of work
Living Wage – calculated to ensure
workers’ remuneration for a regular work
week is sufficient to cover a standard
Judy Gearhart basket of goods for them and their
Program Director dependents
Social Accountability International
www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

Presentation Outline The Living Wage – The Back Story

I. Concepts and Context The concept pre-dates the Industrial
II. Normative References Revolution, but the growth of wage labor
III. Advocacy Arguments gave it more relevance
IV. How to Assess and Calculate a Living Social Justice -- debates between capitalism
Wage? and communism
Religious leaders advocated and called for
state protection and state regulation
Turn of the century -- saw the first
campaigns and emerging discourse

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

Living Wage Early Living Wage Definitions

In 1906 Father John Ryan published a book entitled
A Living Wage; It’s Ethical and Economic Aspects in
which he argued for a “living wage” that allowed “a
I. Concepts and Context decent livelihood for the adult male laborer.”
Ryan proposed that a living wage “would allow an
income for not only food, clothing and a five room
dwelling but also education for four or five children,
periodicals, recreation, labor union dues, church
contributions, and savings for sickness and old age.”
John Ryan, A Living Wage (pp. 134-136).

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009
 Defining a Living Wage Today Living Wage and Minimum Wage
A living wage can be defined as the wage that ILO Convention 131: Minimumn Wage Fixing
workers and their families need for a decent Machinery
standard of living in the region(s) where they live.
Article 3: The elements to be taken into
consideration in determining the level of minimum
Workers should be able to afford for themselves and wages shall…include--
their dependents: a standard level of nutrition, (a) the needs of workers and their families, taking into
housing, transportation, energy, healthcare, account the general level of wages in the country, the cost
childcare, education and savings within regulated of living, social security benefits, and the relative living
working hours (e.g without overtime hours). standards of other social groups;
(b) economic factors, including the requirements of
Question: how to calculate income earned by economic development, levels of productivity and the
spouses or other adults in the household? desirability of attaining and maintaining a high level of
employment.

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

Minimum Wage Fixing:

The Living Wage as a Human Right Emphasis on Process
Article 4
1. Each Member which ratifies this Convention shall create
II. Normative References and/or maintain machinery adapted to national conditions and
requirements whereby minimum wages for groups of wage
earners covered in pursuance of Article 1 thereof can be fixed
and adjusted from time to time.
2. Provision shall be made, in connection with the
establishment, operation and modification of such machinery,
for full consultation with representative organisations of
employers and workers concerned or, where no such
organisations exist, representatives of employers and workers
concerned.

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

Living Wages and Collective

Human Rights Instruments Bargaining
Conv. 131 defers to collective bargaining
A living wage is best determined through a
Universal Declaration of Human Rights functioning bargaining process
Covenant on Economic, Social and Cultural Workers often know what they need to earn and
Rights what is too much to ask of employers.
International Labour Organisation’s Charter Workers may collectively agree to a lower wage
in the near term, provided there is worker-
– the Declaration of Philadelphia management agreement to address productivity
and look for market stability
Where employers consistently don’t share
increasing gains (in income or productivity), trade
unions will be less likely compromise.
www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009
 Living Wage Why International Advocacy Has Grown?

Governments have failed to set decent minimum wage

levels or make necessary cost of living adjustments
III. Advocacy Arguments Low unionization has meant weak collective bargaining
Gender discrimination and high % of women workers
lead to lower wages
Weak enforcement of min wage and other labor
regulation facilitates employers cheating workers

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

Why Advocate for a Living Wage? The Need for Voluntary Regulation

Human Development: Do jobs bring benefits if Brands & retailers have significant (often
workers do not earn enough to better their lives and disproportionate) influence on global production and
that of their children? trade
Studies show that consumer satisfaction increases De-regulation and flexibilization of export-led
policies have left many workforces without
when workers are treated decently.
protection
Weakness of the ‘justification arguments’ for below Mobile capital has contributed to widening the gap
poverty wages; e.g. “Even a poverty-wage job is between rich and poor – both within and between
better than no job.” countries – and resulted in a low road path to
Short-sighted development
Status quo assumption

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

Wage Regulations Recent Campaigns –

vs. Social Safety Nets The Asia Floor Wage:
Economists argue that wage regulations may raise “[A]n industrial level collective bargaining strategy,
unemployment targeting the garment global supply chain and
Basic supply-demand curve argument: by raising the price combating the threat of relocation.”
for labor, the living wage will decrease the demand for Ashim Roy, Secretary General of the New Trade
labor. Union Initiative, India
They also argue regulations create economic The AFW says it is ‘a way to establish a floor on the
inefficiencies race to the bottom and prevent wage competition
between Asian garment-exporting countries.’
Other mechanisms to deliver income to the poor,
include: the US Earned Income Tax Credit, the UK For everyone, the AFW represents a renewed
momentum behind the living wage movement
Working Tax Credit or a negative income tax.
Advocates argue: these benefits can be ‘credited’
or taken into account in the living wage calculations.
www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009
 Three Strategic Pillars: Remuneration Guiding Principles
People must earn enough during the regular work
AFW Core Strategies: SAI Agrees: week to live on and support dependents
Building a regional collective Collective bargaining Services provided to employees for a fee such as
dormitories, food plans and medicine shall be
bargaining strategy against rights need support provided at cost
capital mobility Companies can choose to pay by the hour or for
Wage-led growth is performance
Promoting wage-led growth better than low road Wages must be:
Understood by workers
and economic development development Paid in a convenient manner
Paid in a timely and regular fashion
Pushing for a redistributive Social stds (SA8000) Accurately calculated
Paid in accordance with contract
corporate accountability should lead to more fair
agenda distribution of resources
www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

The Technical Pre Auditing Preparation

Before auditor arrives for the audit, he/she
MUST have a Basic Needs Wage
IV. How to Assess and Calculate a Calculation (BNW)
Living Wage? Key issues:
Three approaches: SA8000, Asia Floor Is BNW level earned without overtime included?
Wage Campaign, Living Wage Calculator Does prevailing wage meet BNW wage levels?

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

SA8000 Remuneration Standard How to Calculate It?

Wages should be sufficient to meet basic needs and provide Assess Workers’ Expenses
discretionary income
Deductions shall not be made for disciplinary purposes except Assess the average family size in the area
where allowable by national law and collective bargaining Analyze typical number of wage earners per family
agreement
All wages and benefits shall be clearly written and detailed for (usually this is not more than 1.6).
all workers Analyze government statistics on poverty levels
All overtime shall be paid at a premium rate as defined by
national law or collective bargaining agreement, or if none in Poverty level analysis will indicate the cost of living
place, at prevailing industry standard above the poverty line.
Labor-only contracting arrangements, consecutive short-term Workers’ income should at least enable him/her to
contracts and false apprenticeship schemes shall not be used
to avoid remuneration obligations support him/herself and 2 dependents above the
poverty line with some discretionary income.

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009
 Consider Challenges:
First Analyze Income Common Non-Conformities
Wages for full-time work Overtime not paid at premium rate either hourly or by piece
Workers do not understand how their wages are calculated
Minus any mandatory deductions for taxes, etc. Employers alternate wage calculation from hourly to piece rate for
“Benefits” should be counted only if they are valued overtime or vice-versa to reduce overall wage
at cost or at competitive market value and only if Excessive deductions for room, board to offset wages paid
these ‘benefits’ are optional for workers [beware of Workers’ basic needs wage does not include taxes, union dues and
health insurance
gouging/over-pricing by employers]
Regional costs are not factored into BNW calculation using formula
Quotas set too high to assure consistent attainment by workers
Failure to guarantee minimum or industry wage per day.

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

Remuneration: Verification Resources Other Approaches

Data Verification Sources
Offices of World Health Organization
Desk study of prices and wages from country’s Ministry of Labor
Data from ILO, local government, internet
Data confirmation from local unions and NGOs
Annual stats published by ILO on food prices
Asia Floor Wage Campaign
Review production records Living Wage Calculator:
Compare with quota
Line quotas vs personal quotas www.livingwage.geog.psu.edu
100% quota equals at least minimum or industry wage
Production orders and output are equal
Time cards vs. payroll records
Verify in interviews
Check on overtime hours

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

Remuneration: Verification Resources 2 Asia Floor Wage Campaign

Payroll records Make a Calculation Based on Local Data
Sample worker payments for accuracy
• Local groups collect information on a daily food basket of
Concentrate on bonus, overtime and deductions 3,000 calories (local data collection annually makes it time and
Payment of social insurance (migrant workers, worker-employer place sensitive)
agreements)
• Multiply this by 3 ‘consumption units’ (2 adults at 3,000 calories
Bonus systems (team and individual)
each + 2 children at 1,500 calories each)
Consult with NGOs and Trade Unions • Multiply this by 30 days for the month
Any dispute with the wage calculation should be substantiated
with analysis or alternative data sources • Double it to cover non-food costs
Worker Interviews ---------------------------------------------------------------
Worker interviews is the most essential part of cross-checking the
adequacy of wages.
B) Then Make it Regional
• Convert to dollars using currency exchange
Cross-check Full Compliance with SA8000
Where free association and collective bargaining are effective, • PPP conversion to reflect a ‘more comparable’ figure
unions may be able to verify that the wage meets basic needs • Negotiate among AFW partners to come up with a common
floor wage: $475 PPP dollars
• Use PPP to convert back to local currency
www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009
 AFW DATA: Compared to Minimum Wages
Two
One Two
Two Adults,
One Adult Adult, Adults,
AFW Basic Monthly Expenses Adults Two
One Child One Child
Needs Regionalized Children
Country Currency Legal Min. Basket AFW Food $232 $378 $448 $594 $740
Child Care $0 $572 $0 $572 $1,012
Bangladesh Taka 1,663 9,450 10,754
Medical $76 $151 $152 $227 $302
Housing $1,185 $1,318 $1,185 $1,318 $1,318
China Yuan 687 1,158 1,639
Transportation $232 $397 $464 $629 $794
India Rupee 4,238 7,695 6,968 Other $188 $369 $376 $557 $738
Monthly After-Tax
Indonesia Rupiah 972,604 2,335,200 1,868,650 Income That's $1,913 $3,185 $2,625 $3,897 $4,904
Required
Sri Lanka Rupee 6,750 15,000 16,706 Annual After-Tax
Income That's $22,956 $38,220 $31,500 $46,764 $58,853
Required
Thailand Bath 4,368 7,567 7,567

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

Living Wage Ordinances;

Living Wage Calculator Other Cities
The living wage shown is the hourly rate that an
individual must earn to support their family, if they Monroe County, PA -- 2 hours from Queens
are the sole provider and are working full-time (2080 Hourly wage to support 2 adults and 2 children:
hours per year). The state minimum wage is the $24.64/hour
same for all individuals, regardless of how many Annual expenses to support 2 adults and 2
dependents they may have. The poverty rate is children: $49,639
typically quoted as gross annual income. We have Rios Arriba County, NM
converted it to an hourly wage for the sake of Hourly wage to support 2 adults and 2 children:
comparison. Wages that are less than the living $22.97/hour
wage are shown in red. Annual expenses to support 2 adults and 2
children: $45,463

www.sa-intl.org Social Accountability International © 2009 www.sa-intl.org Social Accountability International © 2009

Living Wage Calculator – Queens County, NY

One Two Two

One Adult, Two Adults, Adults,
Hourly Wages
Adult One Adults One Two
Child Child Children
Living Wage $11.86 $19.66 $16.29 $24.10 $30.30
Poverty Wage $5.04 $6.68 $6.49 $7.81 $9.83
Minimum Wage $7.25 $7.25 $7.25 $7.25 $7.25

www.sa-intl.org Social Accountability International © 2009