Living incomes and living wages

Living incomes and living wages are both based on the concept of “the cost of a basic, decent standard of living” for smallholding households and hired workers at the beginning of global supply chains. While the notion of a living income focuses on independent smallholders, the living wage concept relates to hired workers.
 

A living income is defined as the “net income of a family that is earned under dignified working conditions and is sufficient to afford a decent standard of living for all members of that household”, while a living wage is defined as “remuneration received for a standard work week by a worker sufficient to afford a decent standard of living for the worker and her or his family”. Both concepts take into account the cost of food, water, housing, education, healthcare, transportation, clothing, and other essential needs including provisions for unexpected events. These concepts thus go beyond traditional poverty levels by defining a decent standard of living, rather than mere survival, as the minimum goal.

The two concepts are closely linked, but relate to different groups of people. As a result, approaches to closing the respective gaps can vary widely, which is why the concepts are treated separately.

• Living incomes and wages are a fundamental human right. Articles 23 and 25 of the Universal Declaration of Human Rights issued by the United Nations in 1948 demand that 
  
  “Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.” (Article 23).
  
  “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services [...].” (Article 25)
   
• The Supply Chain Due Diligence Act emphasises companies’ responsibility to respect human rights in their business practices. The draft proposal of the EU’s due diligence legislation (CSDDD) explicitly refers to living wages, and the European Parliament is currently discussing including living incomes in the directive.
   
• Both concepts also contribute to the Sustainable Development Goals (SDGs) of the United Nations, including SDG 1 “No poverty”, SDG 2 “Zero hunger”, SDG 8 “Decent work and economic growth” and SDG 10 “Reduced inequalities”, and are effective concepts for combatting child labour.
   
• For future generations of farmers in particular, fair remuneration is fundamental to ensuring the attractiveness of agriculture as an employment sector. If we cannot guarantee living incomes and wages for the people who produce our raw materials, we will be unable to secure raw materials supplies for the world’s population in the long run.  
   

An internationally recognised methodology for calculating benchmarks for living incomes and living wages is the Anker method.
 

Based on international norms and local standards, it calculates the necessary expenses for a family to maintain a basic, decent standard of living, taking the average local cost of adequate nutrition, appropriate housing, other essentials such as education and clothing as well as provision for unexpected events into consideration.
 

Comparing the calculated benchmark to the actual income/wage level provides the income/wage gap that needs to be closed. Corporations, governments and civil society use the living income/living wage benchmark and the associated income/wage gap as a basis for developing and implementing interventions designed to gradually raise incomes and wages. 
 

Living income: You can find instructions on how to calculate or estimate actual incomes and how to calculate the income gap here. Answers to general questions about calculating incomes and income gaps are available here, and an example calculation of the income gap for the cocoa sector in Côte d’Ivoire using these methods can be found here.
 

Living wage: An internationally recognised tool for calculating actual wages is the IDH Salary Matrix, which you can find here. The Salary Matrix is a handy tool that can be used to assess how total employee remuneration (including wages, bonuses, cash payments and benefits in kind) compares to the relevant benchmarks for living wages in a particular region.
 

You can find living income and living wage benchmarks here! If there is no benchmark for your project region or country yet, please feel free to contact us or see here for further recommendations.
 

Responsible procurement practices at corporations, in the form of e.g. appropriate pricing policies or long-term business relationships, are fundamental to achieving living incomes and wages.

To complement the IDH Salary Matrix, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH has therefore developed a Living Wage Costing Tool that allows users to calculate how the wage gap can be closed in various scenarios based on the actual wage situation and the calculated living wage benchmark.

For living incomes, the price paid for the traded raw materials is a significant factor. The living income reference price is the price a smallholder should receive for their product in order to achieve a living income when taking their total crop and other income factors into account. There are various ways of calculating reference prices for a living income, which differ in terms of the underlying assumptions and the available data. This Practitioner’s Guide provides a handy overview of the different methods. The GIZ “Living Income Reference Price Estimator” can be used to calculate reference prices based on a variety of approaches and in different production scenarios.

To highlight the effects of procurement practices along the agricultural supply chain from buyers through suppliers to producers, INA, Inclsve and Fair & Sustainable conducted a study in 2022/2023 with participants in the banana supply chain in Ecuador and the cocoa supply chain in Ghana. The study’s findings were used to derive recommendations for sustainable and responsible procurement practices for purchasing companies, which you can find here.
 

There are a wide range of global initiatives and organisations as well as numerous private companies advocating for living incomes and wages in global agricultural value chains.
 

The Living Income Community of Practice is an international working group initiated by GIZ in cooperation with ISEAL Alliance and the Sustainable Food Lab. Its members include actors from the private and the public sector, from civil society, standard-setting organisations and academia. Alongside recurring discussion formats it offers a wide range of information, knowledge and ways to get started on the issue, e.g. a Living Income Toolkit for corporations developed by INA as a step-by-step guide to help businesses implement living incomes in their supply chains. The working group brings together over 2300 interested individuals from a wide variety of stakeholder groups and countries.
 

The Living Income Toolkit for governments is aimed at decision-makers who want to support smallholders in order to close the gap between their actual income and a living income in agricultural value chains. The document contains considerations and instructions for policymakers in both producing and consuming countries.
 

The Global Living Wage Coalition (GLWC) is a unique knowledge and campaigning partnership that facilitates joint measures to achieve a decent standard of living for working people and their families around the world. GLWC is organised as a partnership between two independent networks with complementary remits and tasks: the Anker Living Wage and Income Research Institute (Anker Research Institute) and the GLWC Action Network (Action Network). Researchers and research institutions participate in theAnker Research Institute with the common goal of conducting high-quality research, primarily on living income and living wage benchmarks based on the Anker methodology.
 

The ALIGN-Guidance-Tool initiated by GIZ contains an interactive world map with information on raw materials production, wage structures and income levels in various countries and provides a guideline for corporations to implement living incomes and wages in their supply chains.
 

Alongside the members active in the German Retailers Working Group on Living Income and Living Wages, other examples of companies that pursue a living income/living wage strategy include Tony’s Chocolonely, GEPA, Mars, IKEA, Nestlé and Unilever. Standard-setting organisations such as Fairtrade and Rainforest Alliance are also explicitly exploring these concepts.