Worthwhile Wages: The Struggle to Pin Down Fair Payment

Posted on September 29th, 2019

Worthwhile Wages: The Struggle to Pin Down Fair Payment

Worthwhile Wages: The Struggle to Pin Down Fair Payment

The basic goal behind Fair Trade is simple enough: consumers want their goods to be produced according to the same standards of respect for human life that they uphold in their own lives. To make things even simpler, the WFTO summed things up for us: they've provided just 10 principles to uphold in the supply chains behind the stuff we buy. So, we know what to look for––the hardest part is over, right?

Well, not quite. As it turns out, some goals of Fair Trade are so elusive in practice that even Fair Trade Organizations don't know exactly how to execute them. For a prime example, check out the WTFO's 4th principle of Fair Trade: Fair Payment.

Right away, it's apparent that Fair Payment might be trickier than the other 9 principles; the WFTO has to break it down into three separate components: Fair Prices, Fair Wages, and Local Living Wage. Here's how the WFTO defines those terms:

  • Fair Prices: A Fair Price is freely negotiated through dialogue between the buyer and the seller and is based on a transparent price setting. It includes a fair wage and a fair profit. Fair prices represent an equitable share of the final price to each player in the supply chain.
  • Fair Wages: A Fair Wage is an equitable, freely negotiated, and mutually agreed wage, and presumes the payment of at least a Local Living Wage.
  • Local Living Wage: A Local Living Wage is a remuneration received for a standard working week (no more than 48 hours) by a worker in a particular place, sufficient to afford a decent standard of living for the Worker and her or his family. Elements of a decent standard of living include food, water, housing, education, health care, transport, clothing, and other essential needs, including provision for unexpected events.

What it all boils down to is this: In determining what price is fair for a producer, FTOs also have to consider what price would allow producers to pay their workers a wage that is acceptable for both employer and employee.

However, many workers today agree to wages that really aren't fair; when workers and/or producers are economically marginalized, they may have no choice but to work for wages that are still insufficient to prevent debt, disease, and discord in their lives. This is where the Local Living Wage comes in––you can think of it as a minimum wage, but for countries that either:

1) Don't have a legal minimum wage,
2) Can't enforce one,
3) Have one that is far below what is actually needed to sustain a decent life.

The last scenario is by far the most common; although an overwhelming majority of countries do have minimum wage laws, the rates are often desperately low, such as Bangladesh's National Minimum Wage of less than $18 per month. So, establishing the Local Living Wage in a given region is essential for guaranteeing that the other two requirements of Fair Payment are met. But, big surprise here, it's also extremely difficult to determine what that wage should be.

The Deal with Local Living Wages

By definition, many elements have to be measured in order to correctly calculate a Living Wage. Factors such as housing and health care vary significantly by nation or even within different regions of a single nation, so in order to be accurate, a distinct Local Living Wage must be calculated for each area with unique economic circumstances. This, of course, is a monumental task and one that FTOs are just recently getting underway. The Global Living Wage Coalition is leading current efforts to establish living wage benchmarks around the globe, with 22 completed benchmarks and 8 more in-progress.

The GLWC calculates Living Wages using a new manual published in 2017, the Anker Methodology. This methodology collects data from workers and labor organizations about local living conditions such as workers' spending habits, diets, and quality of housing. Then, this data is compiled with international standards for nutrition, housing, and more to estimate what per-worker-wage is needed for an average-sized family to meet basic needs and have some funds left over for emergency expenses.

Most other methodologies for calculating living wages don't account for emergency expenses, which makes the Anker Methodology all the more important as a tool for lifting people out of poverty; a lifelong cycle of debt can be started with just one unexpected medical (or other) emergency, prompting a family to take out loans that are virtually impossible to pay off. The Anker Methodology's calculation is also subject to various adjustments to further account for locality-specific needs and standards after an original estimate is produced.

The Anker Methodology has been praised by experts as one of the most substantial and comprehensive ways to measure a Living Wage, so it's no wonder that its manual is nearly 400 pages long. Anyone interested in learning more about how the methodology works can check out the full version for free here, or a condensed run-down here.

Common Questions About Living Wages

As we've established, the concept of Living Wages isn't a simple one. You probably have some initial questions about how this all works––I did too. Fortunately, I got the chance to talk with our wonderful India-based Regional Director & Certifier, Heidi Heikkinen, who cleared some things up for me. Heidi is an expert on development project management, monitoring and evaluation, and sustainable development. In turn, I'm going to try and clear them up for you!

Question: What are some of the potential economic benefits from employers adopting a living wage instead of just the minimum wage?

Answer: Well, many countries do have minimum wages, but they are extremely low to the point where it is absolutely impossible for families to feed themselves with that level of pay. As long as the wages are so low that people are not able to feed themselves, there will be child labor, child marriages, malnutrition, children missing school, farmers becoming so indebted that they commit suicide, and all kinds of social issues and human suffering as a result. Not only does insufficient payment affect individual families, but it affects the general progress and economic growth of a nation too. Getting paid enough is first and foremost a human rights issue, but it's also a factor that can affect many aspects of society.

Question: How does calculating a living wage benchmark put pressure on employers to pay that wage?

Answer: My original guess was that employees in developing countries would use a calculated Living Wage Benchmark as a bargaining chip to push their bosses for better pay. As it turns out, that's not normally what happens; the responsibility falls on us as consumers. Workers aren't usually aware when these studies are released, so the pressure for higher pay comes from buyers who are familiar with the studies asking factory owners and employers about the Living Wage benchmark. This makes it difficult for employers to ignore the benchmark and continue paying considerably less than what the studies calculated. In short, a Living Wage benchmark gives power to consumers to demand better wages for the workers who produce their goods.

Question: Since the Anker Methodology is so long and complex, isn't it difficult for local labor organizations or employers to recognize the validity of such a system?

Answer: Well, yes... or at least it makes it difficult for the methodology to spread [and] get enough benchmarks done to have better geographical coverage. The GLWC was asked during a webinar how a factory owner or manager could calculate the living wage for his or her locality. Their answer? It's not possible, because the calculation requires a team consisting of economists, researchers or professors using the Anker Methodology. There are current efforts being made to create a more accessible calculation, though. For example, the WFTO has developed their own Fair Payment policy with a calculation that is based on [the Ankers'] methodology, but with tools that are meant to be used by local fair trade producer groups and factory managers.

Question: How long does it usually take to calculate a living wage benchmark?

Answer: It takes approximately 6 months to complete one benchmark.

What's Next for Fair Payment?

Clearly, Fair Trade Organizations still have plenty of work to do in delivering Fair Payment to workers everywhere. Even the issue of simply determining a Living Wage is far from a closed case; while the Anker Methodology has already achieved significant success, it's been around for less than two years. The complexity of calculating a Living Wage means that methodologies will likely continue to develop for the foreseeable future. But for now, fans of Fair Trade can find comfort in knowing that progress is being made in pinning down Fair Payment and that no issue is too challenging for those who are resolved to fight for a fairer world.

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