Step 1: Identify the Living Wage

What is a living wage?

Earning a living wage means the basic cost of living for a family is attainable by the adult wage earners each month. A Living Wage is paid when a worker receives remuneration that is sufficient to afford a decent standard of living for the worker and her or his family in their location and time. Elements of a decent standard of living include food, water, housing, education, health care, transportation, clothing, and other essential needs including provision for unexpected events.

The last 100 years have showed enormous progress on the work of Living Wage. The concept of paying people an amount sufficient

to maintain a decent standard of life was first published in 1919 by the ILO.  The first known effort by a company to pay a living wage was started in 1931 when Ford measured costs of living in Detroit, USA and Europe to establish wages that would enable workers to afford a similar standard of life.  In the later 1900s, companies and organizations increased their efforts on living wage, but were met with difficulty when living wage benchmarks and measures of current wages were challenging or non-existent. After researchers Martha and Richard Anker published their methodology for calculating a living wage benchmark and began publishing authenticated studies in 2011, more and more projects to improve workers’ wages have taken off.

Today, various companies and coalitions have banned together to work on living wage in international supply chains. Living Wage Benchmarks in almost all countries worldwide and tools to measure current wages are readily available.

The living wage is calculated by first establishing the cost for the basic but decent life in a specific region, inclusive of food, housing, education, healthcare, transportation, clothing and other essential needs for a family including unexpected events. The exact costs reflect local items and prices. The total costs for a family are then divided by the typical number of working adults to reflect other wage earners contribution to the family earnings. This value indicates the necessary take home pay for one wage earner, or the net living wage, in a specific region for a single month. Finally, this net living wage is adjusted to consider taxes and deductions.

This conceptual definition has been translated into a practical methodology by a handful of research and measurement organizations. Through these methodologies, these organizations estimate the living wage. These estimates that are specific to a time and place are called living wage benchmarks. Recognized organizations can provide such independent and credible benchmarks, as well as background and contextual information.

Companies need reliable living wages for every region they source from to calculate living wage gaps (=living wage – current wages). IDH is committed to assisting companies in measuring potential gaps between current wages and credible living wage benchmarks that are applicable to their locations. The full-fledged Anker methodology is widely accepted, and it has played an important role in catalyzing wage improvement in global supply chains. IDH recommends the use of this methodology, which is supported by members of the Global Living Wage Coalition that IDH works with.

Additionally, IDH acknowledges that there are other methodologies available to calculate living wage benchmarks. IDH has developed a process to recognize other robust living wage benchmark methodologies that are available in the market which can be used when an Anker methodology benchmark is not available.

Living Wage Benchmark Methodologies that believe they meet all of the nine criteria are invited to apply. 

Click here to read our complete Recognition Process description

Interested applicants can email IDH at LivingWageMatrix@idhtrade.org to receive the expression of interest form.

• Collecting data

  Estimate living wage based on data collected and representative of the location of the living wage benchmark

• Cost of living of a typical family

  Measure the cost of living of a typical family in a region (family size is estimated based on regional/national family size data or birth-rate data)

• Items of cost of living

  The cost of living based on requirements for good nutrition, housing, education, healthcare, household goods, transportation, personal care, etc.

• Working adults

  Factors in the expected number of working adults in a family by dividing the total cost of living by 1+ the employment rate

• Sufficient net income

  Account for statutory deductions from gross income, such as taxes, union fees, etc.

• Differences in context

  City/region-specific or at least account for urban and rural differences

• Conflict of Interest

  No inherent conflicts of interests. Methodologies must have sufficient distance from funding sources to maintain integrity. In addition, individual benchmark results must not be influenced by the funding source

• Transparency

  Publish a clear and consistent methodology for data collection and calculation elements

• Inflation estimation

  Update the estimates yearly for inflation. Estimates can be updated for up to 5 years (considering local circumstances) before a new benchmark is needed

These criteria do not represent a new living wage estimate methodology. They are objective criteria for the minimum elements a living wage methodology needs to include to be recognized by IDH.

Click to read more about each methodology

• Full-fledged Anker Methodology 

• WageIndicator Typical Family Methodology

• Fair Wage Network Typical Family Methodology

• Anker Reference Value Methodology

• Living Wage for US Monthly Methodology

Each organization and Living Wage Benchmark Methodology has their own approach for calculating the Living Wage. To ensure a methodology is rigorous and consistent, the IDH Roadmap on Living Wages created a process to recognize methodologies that meet nine criteria for quality. To learn about the methodologies that are recognized, and the organizations that are behind them, check out our Living Wage Benchmark Series.  For each recognized methodology, one infographic displays all the necessary information including:

• How the methodology meets each of the nine criteria
• Background on the organization that created the methodology
• Key example of what this methodology offers
• Insights on the primary methods of data collection
• Additional details on local recognition, data specificity, and time-frames for publishing new data

IDH Recognized Living Wage Benchmark Methodologies can be found through our Living Wage Benchmark Series. To know if a recognized methodology has a benchmark for your region of interest, search on our Living Wage Identifier Tool.  When available for your region and year of interest, the Roadmap on Living Wages recommends the use of benchmarks developed using the full-fledged Anker methodology. If not available, another IDH-recognized Methodology may be selected.  

IDH has recognized living wage benchmark methodologies that have been vetted and meet our nine criteria for rigor and consistency. When selecting a living wage benchmark for your region of interest, the benchmark should be provided by one of the IDH-recognized methodologies and up to date, meaning it reflects the cost of living of the current year.

In the case that multiple benchmarks from IDH-recognized methodologies and from the current year are available, IDH first recommends selecting benchmarks from the full Anker methodology, hosted by the Global Living Wage Coalution. The full Anker methodology benchmarks are based on extensive field research and assessed by sectoral stakeholders; they are publicly available and supported by a clear and informative background report which explains local context and details of how the calculation of the benchmark was developed.

When there is no full Anker methodology benchmark available, we advise selecting an IDH-recognized benchmark. When there is more than one IDH-recognized benchmark available in your area of interest from IDH-recognized methodologies, we advise choosing a benchmark based on the following factors (these factors are subsequent to the nine criteria for recognition and are not necessary for recognition.)

• Which benchmarks are available to be shared publicly? Although some benchmarks must be purchased before sharing widely, others are already made public. Having benchmarks available for everyone in the supply helps ensure all parties have access to the same information and can work together.
• Which benchmark is most specific to the area of interest (first location-specific, then region-specific, then urban or rural-specific)? living wage benchmarks must reflect the region.
• Which benchmark has been subject to local consultation (eg. through local validation workshops, sharing draft benchmark reports before finalizing, or similar)? Were relevant stakeholders consulted, and their feedback considered?

When choosing a living wage benchmark, there are additional considerations when working on sector initiatives to ensure alignment. Sector initiatives and coalitions that are measuring living wage gaps for a variety of producers and in several countries, should make additional considerations when choosing the group of benchmarks for their initiative.

• Some methodologies have gained traction in certain sectors and initiatives and in such cases, it may be preferable to use the same benchmark methodology for all regions. Although using only one benchmark methodology will limit the choice of benchmarks available, the full Anker methodology and Anker Reference Values can be considered the same methodology for this purpose.
• If the initiative is expected to cover several years, it may be preferable to use the same benchmark methodology from year to year. To learn more about how often benchmarks are updated, check the benchmark series or consult directly with the benchmark methodology.
• Sectors that are widely associated with certain voluntary sustainable standards and certifications may be subject to specific living wage benchmark methodologies. Refer to guidance on choosing living wage benchmarks from any relevant standards and certifications.

Ultimately, living wage benchmarks must not limit what workers earn but should be used to facilitate wage growth and inform collective bargaining. In the case of having more than one benchmark available in a specific time and location, they can also be seen as steppingstones; each one facilitating growth towards the next, and beyond.

Efforts to develop Living Wage Benchmarks for every region of the world are only recently underway, and it may be that a benchmark does not yet exist for your region. IDH-Recognized Living Wage Benchmark Methodologies can be hired to develop benchmarks on an individual basis.

Contact Global Living Wage Coalition

Contact WageIndicator Foundation

Contact FairWage Network

Living Wage Benchmarks are an indication of a basic and decent standard of living for a particular area. Benchmarks are not inherently sector specific and the living wage applies to everyone living in that area or region. However, certain areas are highly dominated by the presence of one or two sectors which makes the living wage particularly relevant for that sector.

Full-fledged Anker methodology benchmarks publish sector-agnostic numbers that indicate the living wage for an area. In many cases, such benchmarks explore commonly provided in-kind benefits in bonuses in a specific sector. These additions are useful to gain further understanding of the remuneration received by workers in a specific sector, but to assess current remuneration IDH advices to use facility-specific in-kind benefits when measuring gaps. Click to read Step 3 for more on measuring current remuneration in a facility.

Read our infographic!

Minimum wages are prescribed wage levels that are mandatory by local or national law. In some cases, they are sector specific. Minimum wages are set by governments and often reflect the supply and demand of labor—balancing needs of employers and employees. Living wages are determined by scientifically assessing the needs for basic but decent standard of living. A living wage considers the exact costs of basic needs like housing, food, and transportation and also adjusts for the difference between net and gross pay so employees are sure to take home a sufficient amount.