ILO recommends living wage over minimum wage

Introduction

No matter where you live, people earn income for the work they do. Wages have always been a long feature of every economy. Yesterday was May 1st, which is often remembered across various democracies as International Workers Day. Its a holiday, but more important, a time to think about the fate of workers across the world.

Working conditions of wage earners are not exactly impressive everywhere. In fact, there are more wage earners that live below the poverty line than there use to be. Hence, the issue of wages is one important element of work that needs to be reconsidered. The International Labor Organization (ILO) has been tasked with improving working conditions of people around the world. In a recent great move, the ILO has been pushing member countries to adopt living wages over the more popular minimum wage. Is this effort in the right direction of global labor? This article wants to take a deeper look at this.

Minimum wage and economic implications

Minimum wage is a popular reward structure across many economies today. Whether they are advanced or developing countries, each sector of the economy often have a fixed amount of money paid to workers based on their educational qualification, work time and other factors. People that earn minimum wage often know that this is the least amount they expect to earn working in a particular sector. While minimum wage is practiced everywhere, it operates with serious shortcomings.

Consider just two of the downsides of minimum wage:

One-size-fits-all: One big problem with minimum wage is that it is a unified reward structure for everyone. While it seems like a fair approach, it really is not. Workers in a particular industry do not live in the same place. The economic demands on each person differs from place to place. For example, workers that live in a place where there is high cost of food items would spend more than workers that live in an agricultural community. Hence, if the two workers earn the same wage, their economic situation would vastly differ.

The current unified minimum wage structure practiced in most places thus does not take into account the unique economic conditions of workers in different places. Hence, while a few workers might benefit from earning minimum wage, a vast number of workers are actually struggling to survive because of unique economic challenges in the community.

Fixed and always not enough: Minimum wage is often set and allowed to remain like that for a long time. In many countries, the same minimum wage has been paid to workers over many years. Well when you consider how ever-changing the economy is, then it does not make sense to fix the wage at a particular rate over a long time. Consider one of the biggest killers of minimum wage - inflation.

The prices of goods continue to skyrocket over time. Everything is now more expensive than it was. Cost of accommodation, transportation and housing are on the roof. With a fixed minimum wage, the worker continues to earn the same amount, but is somehow expected to spend much more on everyday living. Its not difficult to see that there are many wage earners that are below the poverty line. A minimum wage would not be enough to afford good standard of living.

There are still many other issues that minimum wage has. For example, not every sector implements minimum wage. Some sectors where employers do not value workers a lot, often do not even pay minimum wage. The above are just samples of the downsides of minimum wage. So the ILO is right in pursuing a different strategy towards ensuring that workers are not just rewarded in a fair manner, but that wages should always reflect our changing times and economic situations unique to the place.

A call for living wage

So the ILO is recommending that labor unions and governments in general should adopt a living wage and do away with minimum wage. The correction definition of living wage has just been approved by the ILO.

A living wage is thus defined as:

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; to be achieved through the wage-setting process in line with ILO principles on wage setting.” source

Interesting definition right there! You could immediately see from the above that a living wage has real gains over minimum wage. Take a look at the following:

Unique to each environment: Minimum wage is fixed for all but living wages are not. A living wage is calculated and paid based on prevailing economic circumstances of a place. So workers in the same sector that live in different communities would expect different living wages because of the differences in economic environments.

This makes a living wage able to sustain a decent standard of living of the workers. People that live in urban communities where costs are often higher would naturally earn more living wages than their counterparts in rural communities - for example. In this way, living wages tend to be fair to everyone considering their economic environment.

Considers working time: In the labor work, many workers are forced to do overtime without appropriate compensation. This in essence means that a workers hard labor does not reflect in their wages. They simply gets paid less to do more work. With living wages, this would no longer be allowed, Living wages would be designed based on how much hours the worker performed their duty.

This is another way to be fair to workers. Every input they made or will make in the work is reflected in the living wage. Basically, the more time is spent at work, the more money would be made.

Finally

There is a lot that is great with a living wage. If all labor unions, governments and employers of labor would adopt living wage, it would go a really long way in giving workers a decent wage for better living.