Living income and living wage – INA (2024)

Living incomes and living wages are both based on the cost of a basic but decent standard of living of workers and their families, taking into account country circ*mstances. While the notion of a living income focuses on self-employed workers, including smallholder farmers, the living wage concept relates to employed workers earning wages, such as workers of food-processing companies.

A living income is defined by the Living Income Community of Practice (LICoP) 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 the International Labour Organization (ILO) defines the living wage as ‘ the wage level that is necessary to afford a decent standard of living for workers and their families, taking into account the country circ*mstances and calculated for the work performed during the normal hours of work”. Both concepts take into account the cost of food, water, housing, education, health, and other essential goods and services, such as transportation and clothing, and should faciliate savings 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.

Notably, setting living wages and living incomes should consider economic factors. Among others, these includes macroeconomic trends (such as economic development levels), employment (with a view to ensure high employment, including through employment formalization), as well as the capacity of companies to pay higher wages and self-employed workers to earn higher incomes (considering their business competitiveness). Hence, for any living wage and living income initiative to be sustainable, technical assistance measures to improve economic factors should be designed and implemented.

• 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 German Supply Chain Due Diligence Act emphasises companies’ responsibility to respect human rights in their business practices. The EU’s Corporate Sustainability Due Diligence Directive(CSDDD) states living wages and living incomes amongst the set of human rights that large companies will be legally obliged to care for when doing business in the EU Single Market.. Specifically, living incomes and living wages are referred to as:

  The right to enjoy just and favourable conditions of work, including a fair wage and an adequate living wage for employed workers and an adequate living income for self-employed workers and smallholders, which they earn in return from their work and production, a decent living, safe and healthy working conditions and reasonable limitation of working hours, interpreted in line with Articles 7 and 11 of the International Covenant on Economic, Social and Cultural Rights; (paragraph 6)
  

• 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.
  
• The concept of the “living wage” appears twice in the ILO Constitution. Adopted in 1919 as part of the Treaty of Versailles after the first World War, its preamble declares “universal and lasting peace can be established only if it is based upon social justice” – and calls for an improvement in conditions of labour, including “the provision of an adequate living wage”. During the second World War, the ILO Members adopted the Declaration of Philadelphia, which was then incorporated into the ILO Constitution. The Declaration affirmed the “solemn obligation” of the ILO to promote “policies in regard to wages and earnings, hours and other conditions of work calculated to ensure a just share of the fruits of progress to all, and a minimum living wage to all employed and in need of such protection”.
  

There are many internationally recognised methodologies for calculating living incomes and living wages, including the ILO and theAnker Research Institute.

The ILO developed and in 2024 adopted its concept of the living wage. Besides an official definition, its concept includes principles to estimate and operationalize the living wage. The ILO considers the needs of workers and their families as well as economic factors, in line with the ILO Minimum Wage Fixing Convention (No. 131), promoting the setting of living wages through labour market institutions, including social dialogue. Notably, the ILO developed a methodology to estimate living wages, using national and sub-national household income and expenditure surveys. Since self-employed workers, such as smallholder farmers, do not earn wages but an income from selling their goods and services, the ILO since 2024 explores in a BMZ-funded project (see here) how the concept of the living income can facilitate decent living standards of agricultural workers and their families in Costa Rica, Côte d’Ivoire, and Ethiopia.

Based on international norms and local standards, the Anker method 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 tocalculateorestimateactual incomes and how to calculate the income gaphere. Answers to general questions about calculating incomes and income gaps are availablehere.

Living wage: An internationally recognised tool for calculating actual wages is the IDH Salary Matrix, which you can findhere.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.

How effective procurement practices along the agricultural supply chain from buyers through suppliers to producers are, can be found in this study, we together with Inclsve and Fair & Sustainable conducted with participants in the banana supply chain in Ecuador and the cocoa supply chain in Ghana. Deriving from the study you can find an overview of recommendations for sustainable and responsible procurement practices here.