When we started the Fair Wage approach the situation with regard the living wage was rather complex. There was no generally agreed methodology on how to measure a living wage, while there were a number of organizations involved in the calculation of a living wage.
However, these methods were very different: they were often not calculated on the same year, the family size taken as the reference (1 adult, or two adults + 2 dependents etc.), or the time unit (monthly, yearly, weekly, daily) for the living wage calculation were also differing. The currency unit could also be different, some calculating in local currency unit and others for instance in USD.
These large differences in the methodologies were also leading to great variations in the living wage calculations. Partly because of this, many companies were reluctant to make commitments to ensure the living wage payments in their operations or supply chains.
Confronted to this situation, the FWN took the decision to implement one major activity: extensive field work. We believe in fact that the collection of data at local/national level is the most solid way to collect living wage figures that match the reality of workers and their families.
The idea of a living wage is that workers and their families should be able to afford a basic, but decent, life style that is considered acceptable by society at its current level of economic development. Workers and their families should be able to live above the poverty level, and be able to participate in social and cultural life. The list of goods and services in the basket retained for the calculations of the living wage should reflect this objective and include all necessary and basic areas of expenditure of workers and their families, and in particular:
- Housing (according to UN-Habitat, UN criteria);
- Food (that is enough to ensure 2200-3000 kilo-calories/adult/day)
- Child care;
- and a percentage left for leisure and/or for some precautionary savings to face eventual unexpected expenditure.
These represent a list of ‘minimum elements a living wage methodology needs to include’.
This allows us to have data that reflect the need of a typical family along local demographics (fertility rate) and local employment rates (number of income earners in the family).
The field work is carried out by the FWN in a multi-step process:
First with surveys being carried out among workers in factories/farms in the different locations that allows to capture what are the daily and also monthly expenditures of workers and their families, and also what do they consume and in what quantities. These surveys are then combined with surveys carried out in local markets and local shops to capture the right prices of basic goods and services.
A representative sample of workers and a minimum number of 80 workers are interviewed In each factory/farm under survey. Questions are asked on their family expenditures with also more qualitative questions on the eventual living difficulties they may face.
The survey results allow us to know what do workers consume in their family and for what prices. In order not to have the responses of workers on their living standards be influenced by their income situation, we interview workers in different grades and positions in the companies (under the assumption that quality and quantity of items increases along the income situation). We also add to their expenditures 15 to 20% for precautionary savings to cover eventual unexpected expenditures.
The Covid-19 crisis confirmed that in periods of crisis workers have to face unexpected expenditures, in this case increased costs due to health care. The amount for savings is adjusted according to the data collected through qualitative questions asked to workers about their past capacity to face such unexpected expenditures and the ways they were able to cover them, either through using their own savings or through loans asked to family members or financial institutions, which help us to identify the living difficulties of workers and their families.
Workers’ expenditures are then combined with surveys carried out in local markets and local shops. This allows to check that the prices provided by the workers are fully accurate since there is always a risk that workers would over-estimate prices and their expenditures with the expectation that this would push the company to increase their wages.
The local market surveys are carried out both in urban and rural areas since costs of living are different between these two types of areas. These two sources of information then help us to define what should the living wage be for the workers in the respective factories and localities.
The above surveys are collected through two different channels. Since the FWN carries out fair wage assessments for companies all over the world, they represent a unique opportunity to systematically carry out workers’ expenditures surveys and local market surveys.
When the FWN identifies countries and/or regions where there is a need for more and newer data, its team of local assessors carries out extensive surveys in those localities to provide new data and living wage benchmarks ( see example below on India and other countries).
Progressively, the online living wage database has been enriched by more living wage data by region and city enabling to make living wage gap analyses more granular. Stimulated by companies’ requests, the current focus of the FWN is to collect a maximum number of data to calculate more regional and city living wage thresholds.