Sedex introduction to the living wage

A living wage is an essential component of decent work, where a worker earns enough to support a family and meet all their basic needs. Learn more about what a living wage is, how to support it in your supply chain, and the business benefits of paying a living wage

 

What is a living wage?

A living wage is when the money and benefits paid to a worker for a standard working week is enough for that worker to afford a decent standard of living for themselves and a family. Earning a living wage means that a worker can house and feed their family, afford healthcare and education, and save a small amount to cushion them against an emergency.

 

Living wage definition

“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 their 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.”

Global Living Wage Coalition

 

Organisations such as the Global Living Wage Coalition use carefully constructed methodologies to calculate living wage estimations, or “benchmarks”, for different regions and countries[i].

A living wage benchmark considers all the basic needs for a typical family in the area they live, and what it would cost to meet those needs properly. For example, living wage benchmarks include the price of a low-cost yet nutritious diet and safe, sanitary housing – not just the cheapest food or shelter available.

 

Minimum wage vs living wage[ii]

Most countries have laws that set a minimum wage, but these minimum wages are not always based on the real cost of living – so they aren’t always enough for a worker to support themselves and their family. This is why the idea of a “living wage” developed.

 

Country Legal minimum wage Living wage benchmark Gap
Bangladesh 8,100 taka per month                          (garment industry) 17,926 taka per month                          (Dhaka area) 55%
Mexico (rural) $149 US dollars per month $625 US dollars per month 76%

 

Why a living wage is important

A living wage is a cornerstone of development, contributing directly to several of the United Nations Sustainable Development Goals (SDGs) including:

  • No Poverty (SDG 1)
  • Gender Equality (SDG 5)
  • Clean Water and Sanitation (SDG 6)
  • Decent Work and Economic Growth (SDG 8)
  • Reduced Inequalities (SDG 10)

Supporting a living wage is just one of many ways in which businesses can contribute to these goals.

 

The business benefits of paying a living wage

Businesses can play a powerful role in supporting workers and communities through paying a living wage, and enabling suppliers throughout their supply chain to do the same.

By paying and supporting a living wage, businesses can:

  • Support a healthier, more stable workforce in their own operations and supply chains for increased supply chain resilience
  • Build a reputation as a good employer, securing and retaining skilled workers – and help suppliers to do the same by supporting living wages throughout the supply chain
  • Support the provision of decent work for the people in their supply chain, contributing to local development and more robust communities.

 

How to support a living wage in your supply chain

  • Look at living wage benchmarks to understand what a living wage looks like in different parts of your supply chain. There are differences between countries, and even between regions within countries. For example, there is often a difference in the cost of living between urban and rural areas.
  • Assess your suppliers to understand the wages and benefits they currently pay to workers – for example, ask them to provide wage data and include questions on this topic when conducting audits or other assessments.
  • You can also conduct a high-level risk assessment to understand where the risk of low wages is typically higher. In Sedex’s Radar tool, 84 countries indicate as “high risk” for wages (workers at risk of not being paid a living wage).
  • Gather basic information from suppliers about workers and contract types, and to separate wage data to understand whether wages are paid equally to different workers – for example, separating this data by gender.
  • Review your company’s purchasing practices and prices. Are the prices you pay to suppliers enough to allow them to provide a living wage to the workers in your supply chain? Talk to suppliers to understand the situation and negotiate changes that would help them to pay workers a living wage. For example, Tesco has committed to a living wage for their banana producers, closing the gap between current wages and living wage benchmarks.[iii]
  • Collaboration is a powerful force here. Join with other organisations to develop a shared commitment to a living wage – for example, by agreeing a minimum price for products or commodities within a region.

 

Understanding wages in your supply chain with Sedex

  • Use a risk assessment tool to understand the inherent risks for the countries and sectors within your supply chain. Pay particular attention to:
    • Wages risk – workers may be at risk of not being paid a living wage
    • Working hours risk – if workers aren’t paid for additional hours, their pay might drop below living or minimum wage levels
  • Use more detailed assessments such as audits to understand the wages, working hours, benefits and other employment conditions. Include worker engagement activities to capture anonymous feedback directly from workers and build a robust picture of their experiences.
  • The wages and benefits data you capture enables you to calculate the total value of what workers receive, to compare this to a living wage benchmark. The IDH – a sustainable trade organisation – has created a “salary matrix” tool to help organisations do this, which is free to use.

 

[i] For more information about the Global Living Wage Coalition’s methodology to calculate living wage benchmarks, see here

[ii] Sources:, Global Living Wage Coalition (living wage benchmarks), Trading Economics, Take-profit.org

[iii] https://www.tescoplc.com/blog/tesco-commits-to-paying-the-living-wage-gap-to-banana-producers/

 

 

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