What is a living wage?
The concept of the living wage is: the wage level that is necessary to afford a decent standard of living for workers and their families, taking into account the country circumstances and calculated for the work performed during the normal hours of work; calculated in accordance with the ILO’s principles of estimating the living wage, as outlined below; to be achieved through the wage-setting process in line with ILO principles on wage-setting.
Pursuing living wages in global supply chains
How can private sector living wage approaches adequately support functioning labour relations systems and ensure sustained wage increases long-term?
In March 2024, the International Labour Organization (ILO) adopted the conclusions of the meeting of experts on “wage policies, including living wages”, which was attended by governments, workers’ and employers’ organisations in Geneva. Nearly 75 years after living wages were established as a human right, the ILO released its first guidance on living wages, defining the concept of the living wage, provided principles for estimating a living wage amount and clarified that social dialogue is critical for operationalising living wages.
This guidance comes at a critical time as approximately onethird of all workers–over a billion people cannot afford at least a basic but decent standard of living. In today’s rapidly globalising economy, goods are produced faster and cheaper while workers’ ability to afford a decent standard of living is further jeopardised. Legally set minimum wages, although adopted in about 90 per cent of countries, often fail to meet workers’ needs, often because minimum wages are not adjusted to keep up with inflation, leading to wage erosion.
A number of companies operating in global supply chains have become increasingly concerned about such inequalities in their own operations and supply chains and have begun integrating living wages into their corporate responsibility frameworks and action plans. Several companies have even succeeded in contributing to workers receiving higher remunerations, namely for their own staff or for workers on plantations and their supplying companies.
With such advancements from the private sector, there became a growing need for uniformity on the concept. For example, IDH and 27 leading global companies and initiatives wrote a letter to the ILO, asking for “clarity and consistency on the key principles that underpin the calculation of living wage” after years of implementing the topic within their organisations and supply chains. The private sector’s embrace of living wages has reached a point of momentum where uniformity and institutionalisation are needed.
Alongside definitions and principles for living wage estimates, one of the core ILO recommendations is the role of wagesetting instruments, such as social dialogue and collective bargaining, in negotiating and institutionalising higher wages. This echoes the mission of initiatives, unions and employer
organisations that leverage social dialogue and collective bargaining as tools to fortify labour relation systems, with adequate wages viewed as a subsequent benefit. While the successes of these initiatives may not be enough to claim universal living wages, they have laid the fundamental groundwork for more sustainable social dialogue.
The ILO guidance offers opportunities for synergy between wage setting based on social dialogue and initiatives in support of living wages in global value chains, fostering fairer and more equitable labour practices in global supply chains.
Read more in this report on:
- The rise of private sector living wage commitments
- Living wage concept become payments for workers
- Private sector initiatives fall short of institutionalisation
- Labour relations historically drive wage increases
- Social dialogue supports the concept of a living wage
- Collective bargaining wins for living wages
- Resources companies can leverage to operationalise living wages in their supply chains
- What is the way forward?
