Wednesday, November 17, 2010
Living Wage Theory
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The living wage is a term used to define a “fair and decent” level of income that would enable workers to meet their “basic needs.” There is no agreed upon definition of what specifically “basic needs” are nor is there an agreed upon methodology to determine basic needs; however, it is generally agreed that “basic needs” means more than mere physical subsistence and includes social needs that would allow a household a comfortable and decent standard of living. There appears to be general agreement that a living wage should provide a nutritious diet, safe drinking water, suitable housing, energy, transportation, clothing, health care, child care, education, savings for long term purchases and emergencies, and some discretionary income. However, even with this more detailed definition there remains a significant difference of opinion as to what specifically is required in order to achieve these more specific objectives. In addition, some have argued that the living wage is not just about wage levels but also must concern itself with conditions of work; a maximum hours of work (usually 48 hours) is often part of the living wage discussion. There are a number of U.N., ILO and OAS declarations and conventions concerning the right of a worker to receive an adequate wage but these provide no precise definition of what that wage should be or how it should be determined.
There are a number of organisations and researchers currently involved in the living wage issue and they have different objectives, different methodologies, and have generally concentrated on different countries. In the developing world the living wage movement has concentrated on raising wages for unskilled workers in export processing businesses or multinationals. There have been several conferences (such as the Living Wage Working Summit in Berkeley during July 1998 and the Global Living Wage Workshop in Atlanta during January 1999) which have brought together a number of the major participants involved with living wage issues in an attempt to establish a more uniform definition and methodology as well as to coordinate strategies for raising wages to living wage levels. Determination of a living wage has many similarities with national attempts to set minimum wages and poverty levels since these latter two measures are normally defined so as to ensure some minimum living standards. Although the ability of the minimum wage or the poverty level to satisfy some level of basic human needs is generally considered as an important factor in their determination, especially in the lower income nations, the specific method by which human needs are incorporated into the process of determining minimum wages and poverty levels is often not transparent. In addition, since minimum wages and to a lesser extent poverty levels, are incorporated into legally binding commitments they must be consistent with other national economic objectives such as efficiency, international competitiveness, price stability, unemployment, and fiscal constraints. The living wage, however, does not explicitly address any of these other economic objectives explicitly but focuses solely on what wage level is necessary to achieve “basic needs” without regard to whether or not such a wage is economically inconsistent with the other national economic objectives. As such, that is the major advantage but also the major disadvantage of the concept.
The overall objective of establishing a living wage is usually not made explicit. It is not clear as to whether the living wage is being suggested as a proposed minimum wage, or as a proposed wage for only some workers (perhaps those working for multinationals, producing for export, or working for governments), or is being proposed only as a reference level. Most estimates of living wages are higher than current legal minimum wages.
A 1973 study by Kilpatrick calculated the budget costs from 1905 to 1960 of a basket of goods or services in the United States, which Ornati had determined a household would need to live at three designated levels of well-being --- minimum subsistence, minimum adequacy and minimum comfort.3 The latter two levels represented standards of living higher than minimum subsistence or poverty and therefore were in spirit similar to current living wage definitions. Kilpatrick found that the minimum adequacy level rose by 0.88 percent in real terms for each 1.0 percent increase in real disposable income per capita; the corresponding minimum comfort level increased by 0.998 percent. Gordon Fisher has found similar (e.g., close to one) income elasticities for poverty using several different approaches for the United States, Britain, Canada, and Australia. An exception to this pattern is the U.S. official poverty line which has remained fixed in real terms since it was established in 1969; Fisher concludes that this has happened for political reasons (no Administration wants the poverty rate to go up during its tenure) and because the official poverty level is determined by theoretical statisticians instead of workers in the field.6 Thus although the living wage is often discussed as a living standard that meets some minimum absolute level of well-being, it is apparent that living wages are culturally defined and based upon and move in tandem with the general living standards of the society.
This post was written by: Franklin Manuel
Franklin Manuel is a professional blogger, web designer and front end web developer. Follow him on Twitter
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