17. LIVING WAGES

PROM Savada, NAIM Sakona, RADU Mares

Introduction

Low wages – sometimes not covering even the basic necessities of a life with dignity – is an issue in many countries, both developing and developed states. Today, the international standard is that of a ‘living wage’ in recognition that minimum legal wages are often artificially low and disconnected from the real costs of living. This is part of the Decent Work Agenda promoted by the ILO and the UN Agenda 2030 (chapter 2). Increasing wages through the actions of individual companies alone can be difficult because remuneration levels are heavily influenced by labour market supply and demand, involve macroeconomic aspects, are affected by competitive pressures in supply chains, and might defy simple regulatory solutions. Extremely low wages trigger other labour violations such as excessive overtime (chapter 18) as workers feel compelled to work extra hours to make ends meet. Becoming tired due to excessive hours in turn can trigger accidents (chapter 20). After years of experimentation with more simple solutions, leading companies have forged new multistakeholder partnerships (chapter 5) and indicate that systemic problems can only be addressed through a collaboration of public and private actors to raise remuneration levels within the entire industry. In developed countries, labour unions and management negotiate to set appropriate wage levels; in this process, freedom of association, collective bargaining and the right to strike are essential (chapter 19). When states repress trade unions, possibly acting on the belief that this creates a favorable environment for trade and investment (chapter 3), workers are deprived of a key tool to achieve minimum wages. There has also been progress in the development of methodologies that make it possible to calculate living wages.

Cambodia upholds the fundamental human right of equal pay for equal work and puts in place an annual minimum wage setting for workers in textile, garment and footwear sectors. As a result, the minimum wage has been increasing since 1997. However, to achieve a decent work for workers, they should be able to receive a living wage in case the minimum wage fails to do so. For that reason, unions and workers in Cambodia have continued pushing every year for the government and manufacturing companies to narrow the gap between the minimum wage and the living wage as soon as possible, claiming that the current speed of minimum wage increment is unlikely to provide workers a living wage. However, achieving a living wage is a complicated and ambitious process considering the fast-changing economy in Cambodia as well as globally. Unlike regulating ‘minimum wage’, achieving ‘living’ wage would require participation from all relevant stakeholders to address current barriers to living wage together.

Main Aspects

Wage, minimum wage, living wage, low pay (1/3 of median wage)
Coverage of minimum wage: national, by industry, by occupation
Method of calculation: factors for determining minimum/living wage
Forms of pay: piece rate pay, payment in kind
Excluded or vulnerable workers (domestic workers, migrant workers, young workers)
Social protection (minimum wages and income transfers)
Collective bargaining
Overtime
Relation to legal system (labour inspection, conciliation/arbitration)
Minimum wage commissions
Relation to market efficiency, productivity, employment, inflation, labour flexibility, comparative advantage of states in international trade
Minimum wage: needs of workers and economic considerations
Multi-stakeholder collaboration and industry-wide action (response to systemic problems)
Purchasing practices of buyer companies

Background

ILO, Wages^{^[1]}

Wages means “remuneration or earnings, however designated or calculated, capable of being expressed in terms of money and fixed by mutual agreement or by national laws or regulations, which are payable in virtue of a written or unwritten contract of employment by an employer to an employed person for work done or to be done or for services rendered or to be rendered”. (ILO Protection of Wages Convention, 1949 (No. 95), Article 1)

In many cases, total wages or earnings include different components, such as:

basic pay
annual bonuses
tips
in-kind benefits
productivity and performance pay
allowances and premiums for non-standard work hours or dangerous work.

The fact that total wages or earnings are made of different components raises the question of which components should count towards compliance with the minimum wage. Should the minimum wage apply to workers’ total earnings – or should it apply only to some of its components? Convention No. 131 does not explicitly indicate the elements to be included in the minimum wage. But clarity is needed for a minimum wage policy to be operational.

In some countries, only basic wages are taken into account for the purpose of minimum wages. In other countries, most other wage components are also included. While both options are possible, a problem arises in cases where the basic wage constitutes only a very small part of total earnings (in which case a minimum wage that applies only to the basic wage is not very meaningful) or when the components of the minimum wage are left undefined. In some countries with no clear legal definition of what the minimum wage should include, this question tends to end up in court.

ILO, Minimum Wages^{^[2]}

Minimum wages have been defined as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract”. This definition refers to the binding nature of minimum wages, regardless of the method of fixing them. Minimum wages can be set by statute, decision of a competent authority, a wage board, a wage council, or by industrial or labour courts or tribunals. Minimum wages can also be set by giving the force of law to provisions of collective agreements.

Minimum wage systems should not be seen or used in isolation, but should be designed in a way to supplement and reinforce other social and employment policies. Several types of measures can be used to tackle income and labour market inequality, including pro-employment policies, social transfers, and creating an enabling environment for sustainable enterprises. The purpose of a minimum wage, which sets a floor, should also be distinguished from collective bargaining, which can be used to set wages above an existing floor.

Living Wage

A Living Wage is: ‘The remuneration received for a standard workweek 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, transportation, clothing, and other essential needs including provision for unexpected events.’^[3]

The concepts of “living wage” and “living income” are both about achieving a decent standard of living for households. The idea of a living wage, however, is applied in the context of hired workers (in factories, on farms, etc.), whereas living income is discussed in the context of any income earner, such as self-employed farmers.^[4]

ACT (Action, Collaboration, Transformation): how does ACT define a living wage?^[5]

Marinakis, The Role of ILO in the Development of Minimum Wages^{^[6]}

The history of minimum wages started a few years before the creation of the ILO. At the beginning of the 20th century, very few countries were experimenting with this new instrument, with the limited scope of protecting workers in low-paying industries or activities. (…) Some sceptics thought there was no need to introduce a minimum wage, as collective bargaining would develop with the expansion of industrialisation providing a bilateral instrument for wage fixing. In fact, this trend did not happen, and minimum wages proved to be a very useful instrument for guiding wage determination, while protecting less skilled workers.

The concept of minimum wages evolved during the years, particularly during the 1960s, when it was conceived as an instrument for economic development. (…) During the 1980s and 1990s, the call for flexibility was incorporated into the stabilization and adjustment programmes. Minimum wages were seen as a source of rigidity which impeded labour market efficiency, rather than a useful instrument as a wage floor which guaranteed a decent standard of living. (…) While at the creation of the Organization wages were part of the core values, the reaffirmation of the ILO’s mission during the 1990s did not include the issue of wages e.g. the Declaration of Fundamental Principles and Rights at work of 1998 made no reference to this issue.

However, most recently, perhaps in view of signs of revival of “living wage” concerns in some countries since the turn of the millennium, the 2008 ILO Declaration on Social Justice for a Fair Globalization refers to a minimum living wage. (…) At the beginning of the 21st century, more than 90 per cent of the countries have a minimum wage, being one of the most extensively applied labour policies. The very existence of the minimum wage as part of the basic policy tools is not under question any more, but the remaining challenge is to arrive to a broad consensus on its correct implementation.

Instruments

The Universal Declaration of Human Rights^{^[7]}

Article 23: (…) (3) 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.

International Covenant on Economic, Social and Cultural Rights ^{^[8]}

Article 7: The States Parties to the present Covenant recognize the right of everyone to the enjoyment of just and favourable conditions of work which ensure, in particular:

(a) Remuneration which provides all workers, as a minimum, with:

(i) Fair wages and equal remuneration for work of equal value without distinction of any kind, in particular women being guaranteed conditions of work not inferior to those enjoyed by men, with equal pay for equal work;

(ii) A decent living for themselves and their families in accordance with the provisions of the present Covenant;

ILO, Minimum Wage Fixing Convention^{^[9]}

Article 3

The elements to be taken into consideration in determining the level of minimum wages shall, so far as possible and appropriate in relation to national practice and conditions, include

(a) the needs of workers and their families, taking into account the general level of wages in the country, the cost of living, social security benefits, and the relative living standards of other social groups;

(b) economic factors, including the requirements of economic development, levels of productivity and the desirability of attaining and maintaining a high level of employment.

Article 4

1. Each Member which ratifies this Convention shall create and/or maintain machinery adapted to national conditions and requirements whereby minimum wages for groups of wage earners covered in pursuance of Article 1 thereof can be fixed and adjusted from time to time.

2. Provision shall be made, in connection with the establishment, operation and modification of such machinery, for full consultation with representative organisations of employers and workers concerned or, where no such organisations exist, representatives of employers and workers concerned.

3. Wherever it is appropriate to the nature of the minimum wage fixing machinery, provision shall also be made for the direct participation in its operation of

(a) representatives of organisations of employers and workers concerned (…) on a basis of equality;

(b) persons having recognised competence for representing the general interests of the country and appointed after full consultation with representative organisations of employers and workers concerned (…).

ILO, Minimum Wage Fixing Recommendation^{^[10]}

6. The minimum wage fixing machinery provided for in Article 4 of the Convention may take a variety of forms, such as the fixing of minimum wages by

(a) statute;

(b) decisions of the competent authority, with or without formal provision for taking account of recommendations from other bodies;

(d) industrial or labour courts or tribunals; or

(e) giving the force of law to provisions of collective agreements.

7. The consultation provided for in paragraph 2 of Article 4 of the Convention should include, in particular, consultation in regard to the following matters:

(a) the selection and application of the criteria for determining the level of minimum wages;

(b) the rate or rates of minimum wages to be fixed;

(d) problems encountered in the enforcement of minimum wage legislation;

(e) the collection of data and the carrying out of studies for the information of minimum wage fixing authorities.

ILO, Declaration on Social Justice for a Fair Globalization^{^[11]}

(…) the ILO has the solemn obligation to further among the nations of the world programmes which will achieve the objectives of full employment and the raising of standards of living, a minimum living wage and the extension of social security measures to provide a basic income to all in need (…)

I. (…) the four equally important strategic objectives of the ILO, through which the Decent Work Agenda is expressed (…):

(ii) developing and enhancing measures of social protection – social security and labour protection – which are sustainable and adapted to national circumstances, including: (…)

policies in regard to wages and earnings, hours and other conditions of work, designed 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

ILO, Minimum Wage Policy Guide^{^[12]}

Setting and adjusting minimum wage levels

Setting and adjusting the level is perhaps the most challenging part of minimum wage fixing. If set too low, minimum wages will have little effect in protecting workers and their families against unduly low pay or poverty. If set too high, minimum wages will be poorly complied with and/or have adverse employment effects.

To be meaningful, minimum wages have to be set at a level that covers the needs of workers and their families, while taking into account economic factors. Assessing whether existing rates are sufficient to meet the needs of workers and their families can be challenging. First, needs of workers and their families cannot be considered in a vacuum; they must be understood in relation to a country’s level of economic and social development, taking into account the views of social partners. Secondly, whether a minimum wage is sufficient to cover family needs depends on the size of one’s family, which varies across workers. It also depends on how many family members earn the minimum wage, and on the local cost of living. Because of all these reasons, adequate minimum standards of living should be ensured through the combination of a minimum wage and social security measures. Yet some useful benchmarks can be used for the purpose of fixing minimum wages.

Absolute estimates of needs of workers and their families can be constructed by estimating the average cost of basic but decent life style for a worker and his or her family by adding up the cost of food, housing, and other essential expenses like for health, education of children, and participation in the social life of the community. This is the approach usually taken in estimating national poverty lines or “living wage” thresholds.

Measuring the needs of workers and their families

Assessing the needs of workers and their families, for the purpose of setting the minimum wage, can be complex for three principle reasons tied to: the measurement of the minimum income level, the household size, and the number of household members working. (…)

Income benchmarks – what are the needs of an individual?

The definition of needs is a relative concept. There can be basic needs, higher needs, and so on. The definition of these different types of needs can also vary across and within countries. For example, should allowance for recreation be considered as part of basic needs – or are they higher needs? The difficulty of pinning down what constitutes what type of need explains why there is no universal definition that is widely accepted. (…)

Household size: How many people’s needs can or should be met?

Household size varies across workers and also through the lifetime of a worker. During the working lifetime of an individual, it is common that a wage earner’s family comprises both adults and dependants. But how many dependents? How many people’s needs should be met? Considering the potential multiplicity of situations, what is the best approach to estimate the size of a household? Three possible options are presented below:

• consider the national average

• consider two adults and two minors as a structure that ensures population replacement

• consider the average household size of lower-income households, given that minimum wages generally aim to protect these groups and that poorer households tend to be larger. (…)

Labour force participation rates: how many people work in a household?

How many people work in a household? This question is important to determine how many people’s needs should be met through one minimum wage. The answer is of course different if two adult members earn a minimum wage as opposed to only one adult. (…)

Given all these different situations, as well as the methodological aspects, what is the most appropriate way to estimate the number of income earners per household for purposes of the minimum wage fixing process? Four possible model scenarios are presented here:

Only one full-time worker, in order to ensure that a household covers its basic needs with one minimum wage.
All working-age adults in a household work full time. For example, in a family with two adults and two children, the two adults would work full time.
The average at the national level, taking into consideration that in many households there is more than one income earner and that not all workers work full time.
The average among lower-income families, in case the number of workers differs from the average family.

Our discussion shows that there are no unambiguous ways to determine whether a minimum wage meets the needs of workers and their families. The answer will always depend on what criteria are used to determine the needs of workers and their families in a given country, the household size of workers, as well as the number of workers per household. It is important for policy makers, however, to have a clear understanding of the living standard that minimum wage earners can afford, and to try to agree on minimum income benchmarks that should be reached through minimum wages and other policies such as income transfers.

Monitoring the effects of minimum wages

Monitoring the effects of minimum wages is a key element of an evidence-based system. Findings from rigorous impact assessment studies should find their way back to Governments and social partners, and inform subsequent rounds of adjustment or changes to the system.

Governments and social partners should have access to studies on the effects of minimum wages on variables such as wages, employment, informality, hours of work, gender pay gaps, income inequality or poverty. Studies should also monitor effects on prices and on the different elements of aggregate demand, including household consumption, investment or the competitiveness of exports. (…)

More controversial is the debate on the employment effects, which have been found to vary across countries and studies. A recent World Bank overview concluded that “although the range of estimates from the literature varies considerably, the emerging trend in the literature is that the effects of minimum wages on employment are usually small or insignificant (and in some cases positive).” But differences in findings across countries and studies point towards the importance of country-specific programmes for monitoring the employment effects of minimum wages, particularly on vulnerable workers and enterprises.

How to enforce minimum wages?

High rates of non-compliance have negative consequences not only for workers and their families, whose rights are violated, but also for compliant employers, as it gives non-compliant enterprises an illegitimate cost advantage. Compliance can be increased through a number of implementation measures, including:

information and awareness raising campaigns
capacity building activities for employers’ and workers’ representatives
empowering workers to claim their rights through individual complaints as well as collective action
measures to formalize the informal economy
targeted labour inspections
sanctions that function as a deterrent to non-compliance
monitoring and responsible purchasing practices within global supply chains
public employment programmes that pay minimum wages

The extent of non-compliance can also vary depending on the design of minimum wage policies and the number of rates, and also depends on the effectiveness of the entire process of designing and implementing minimum wage policies, from fixing the right level and rate structure in the first place, in full consultation with employers’ and workers’ organizations. This is why a comprehensive approach is necessary.

Payment in kind

Payment in kind is non-cash remuneration received by an employee for work performed. This can include: food, drink, fuel, clothing, footwear, free or subsidized housing or transport, electricity, car parking, nurseries or crèches, low or zero-interest loans or subsidized mortgages.

The ILO Protection of Wages Convention, 1949 (No. 95) allows “for the partial payment of wages in the form of allowances in kind in industries or occupations in which payment in the form of such allowances is customary or desirable because of the nature of the industry or occupation concerned” (Article 4.1). In such cases, it calls however for measures to ensure that: (a) “such allowances are appropriate for the personal use and benefit of the worker and his family”; and (b) “the value attributed to such allowances is fair and reasonable”.

It must be kept in mind that payment in-kind tends to limit the financial income of workers. (…) There is also a risk of abuse. Hence, even in those industries or occupations in which such a method of payment is long-established and well-received by the workers concerned, there is a need for safeguards and legislative protection. This can be done in different ways:

Prohibiting in-kind payments as part of the minimum wage. In Spain, the legislation allows for the inclusion in the wage of payments in kind up to 30 per cent, but prohibits it as part of the minimum wage. In Cambodia, in-kind payment cannot be considered as part of the minimum wage.
Allowing a maximum percentage of the wage: While no Conventions or Recommendations fix a specific threshold for payments in kind, the ILO Committee of Experts has expressed doubt concerning payment in kind that exceeds 50 per cent of the wage. Most countries have lower thresholds, with many not allowing in-kind payments exceeding 30 per cent of the wage. (…)
Valuing in-kind payments at cost or less than the cost to employers: In order to preclude employers from profiting from the provision of payment in kind, some countries explicitly state that employers may not charge more than the actual cost of the goods provided. Other countries use the price a worker would pay for a product, service or housing if he or she were to buy it. (…)

Piece rate pay

Piece rate pay occurs when workers are paid by the unit performed (e.g. the number of tee shirts or bricks produced) instead of being paid on the basis of time spent on the job. (…)

In developing countries, workers relying on piece rate wages often constitute a vulnerable section of workers, with many working in the informal economy. Large numbers are women. Piece rate pay is also frequent in the textile, garment, footwear and leather industries, and in global supply chains. (…)

In some countries, piece rate workers must be paid a “fair wage”. In the U.K. piece rate can only be used in limited situations when the employer does not know how many hours the worker does work (e.g. as with some home workers).

A fair wage for piece rate workers in the United Kingdom Employers are obliged to implement the following method: Find out the average number of tasks or pieces completed per hour; for example workers may produce on average 12 shirts per hour. Divide this number by 1.2 so that new workers won’t be disadvantaged if they’re not as fast as the others yet; in our example we divide 12 shirts by 1.2 which is equal to 10 shirts produced. Divide the hourly minimum wage rate by that number to work out the fair rate for each piece of work completed. If the minimum wage rate is £6.70, workers must be paid at least 67p per shirt they make (£6.70 divided by 10).

ILO, Labour Protection in a Transforming World of Work^{^[13]}

2.1. Wage policies

25. During the 1980s and 1990s, support for minimum wage policies weakened. High inflation and the shift from import-substitution industrialization to export-led growth policies in many parts of the developing world led many countries to discontinue adjustments to the minimum wage, leading to a fall in their real value. Debates on labour flexibility and the perceived role of minimum wages and other labour protection policies in contributing to unemployment and informality resulted in a decline in the standing of the minimum wage as a mechanism of labour protection. The decline in unionization and collective bargaining coverage, the pressures caused by globalization and the financial markets and the availability of new technologies weakened workers’ ability to bargain for higher wages.

26. [in 16 high-income countries] the share of worker compensation in gross domestic product (GDP) (the so-called labour share) declined from a peak of about 75 per cent in the mid1970s to less than 65 per cent just before the outbreak of the global economic and financial crisis. Although there is no universal trend, studies and reports have also documented the decline in labour shares in various large emerging economies and most regions of the world. This downward trend in the labour share is reflected in the decoupling of wage growth from productivity growth in many parts of the world (…). The main causes of these trends vary from country to country, but they have been attributed to factors including labour-reducing technological changes, the intensification of global trade, pressures to maximize shareholder value, weaker labour market institutions and the reduced bargaining power of workers.

27. The decoupling of wages and productivity growth has been accompanied in recent years by an increase in wage inequality, with greater stagnation for workers at the bottom of the wage distribution, who are primarily low-skilled and in a weaker position to negotiate wage increases and thus have a greater need for mechanisms of institutional support, such as collective bargaining and minimum wages. (…)

28. To combat low-paid work and rising poverty, and as a means to increase the purchasing power of workers, more countries have turned to the minimum wage as a policy tool over the past decade. The renewed attention on the minimum wage is also partly due to the emergence of empirical evidence showing that minimum wages, when well-designed and implemented, help protect workers and have limited impact either on employment or inflation. (…)

3.1.1. Minimum wages

46. (…) Coverage is affected, for example, by the type of minimum wage system that is in place in a country. Some countries have a national minimum wage that applies to all waged workers in a country (with some exceptions), whereas other countries have systems that apply only to selected industries or occupations. About half of the 151 countries and territories reviewed in a recent ILO study have a minimum wage system that applies uniform coverage on a national or regional basis; the remaining countries implement systems with multiple rates that vary by industry or occupation (…)

47. Even in countries that provide a national or regional uniform rate, there are groups of workers that are sometimes excluded, such as domestic workers, family members, young people, apprentices, disabled workers, workers in free trade zones, agricultural workers and workers in micro- and small enterprises. (…)

48. With regard to the level of protection, the challenge is to set minimum wages in a balanced way that takes into account a host of factors, including: the needs of workers and their families; the general level of wages in the country; the cost of living; social security benefits; the relative living standards of different social groups; and economic factors such as levels of productivity and possible adverse effects on employment if the minimum wage is set too high. (…)

49. The issue of compliance deserves more attention than it has sometimes received in the past. A recent [article] found that one third of the 326 million wage earners who were legally covered in the 11 countries under study were paid less than the legal minimum, indicating a significant degree of non-compliance. In addition, the authors found that, in nine of the countries, the average wages of female workers earning sub-minimum wages was lower than those of male workers, such that the depth of violation was more pronounced among women. This was also true of ethnic and racial minorities and informal workers. (…)

52. The issue of how much is paid is more complicated when it involves overtime. Overtime is an issue of both payment and working hours. Because overtime may need to be paid at a higher rate than regular working hours, disagreement between employers and workers can frequently lead to formal legal complaints about payment. (…)

53. Wage protection is facilitated when there are social actors and legal institutions to support workers. Trade unions play a vital role in guaranteeing that workers are paid in full and in a timely manner. (…) Labour inspectorates and labour arbitration or courts are also critical when violations of wage protection provisions take place. (…)

Making work pay: Extending minimum wage protection

115. The Minimum Wage Fixing Convention, 1970 (No. 131), does not prescribe a particular model of minimum wage system or the level at which a minimum wage should be fixed; rather, it offers member States some flexibility in the implementation of its principles and leaves decisions to national authorities, in consultation with the social partners. Designing the appropriate minimum wage policy involves a number of policy challenges. The 2014 General Survey on minimum wage systems highlighted some of the policy issues that were likely to pose difficulties for national constituents, including:

(i) the definition of the concept of wages and the identification of the elements of remuneration to be included in the minimum wage, particularly in relation to benefits in kind (such as housing and food), for example in the case of domestic workers;

(ii) the exclusion of specific categories of workers from the application of the Convention, notably when frequently applied to categories such as domestic workers, agricultural workers, young workers or other groups that may need protection from unduly low wages;

(iii) the application of the principle of equal pay for work of equal value, especially when minimum wages differ by sector or occupation, or differ on the basis of age, disability or the migrant status of the workers concerned;

(iv) compliance with the requirement that employers’ and workers’ organizations should be fully consulted at all stages of the development and implementation of the system;

(v) the joint consideration of the needs of workers and their families and of economic factors; and

(vi) the establishment of dissuasive sanctions and the allocation of adequate resources for labour inspection services.

ILO, Global Wage Report^{^[14]}

Minimum wages

One measure introduced to reduce wage inequality and working poverty in many countries in recent years has been the establishment or strengthening of minimum wages. The level and distribution of wages are determined by a wide range of factors. Choices that are made in education, childcare or migration policies can affect the supply of male and female workers of different skill levels to the labour market, while trade policies or technological innovations can change the relative demand for workers with different levels of qualifications.

Labour market institutions also have a significant impact on wages and wage inequality. Collective bargaining allows groups of workers to negotiate higher wages with employers, and this can have a particularly large impact for workers in the lower half of the distribution who may have less individual bargaining power. In many countries, however, collective bargaining coverage remains relatively low or has contracted. Several countries have accordingly turned towards new or stronger minimum wage setting mechanisms. As the OECD has pointed out, “the recent crisis and the longer-running trend of rising inequality have added new momentum to minimum-wage debates”.

The setting of minimum wages is a balancing act; it should be based on statistical evidence and done in full consultation with social partners and, where appropriate, with their direct participation on an equal footing. Recent evidence shows that when minimum wages are set at an adequate level, taking into account the needs of workers and their families as well as economic factors, they can raise the wages of low-paid workers – many of whom are women – without significant negative effects on jobs. This has been the finding, for example, of the UK Low Pay Commission (2014) and of the first evaluation of the new national minimum wage in Germany.

After reviewing the existing literature, a World Bank study concluded that “although the range of estimates from the literature varies considerably, the emerging trend in the literature is that the effects of minimum wages on employment are usually small or insignificant (and in some cases positive)”. In high-income countries, a review of about 70 studies shows that findings are varied but the most frequent finding is that employment effects are close to zero and too small to be observable in aggregate employment or unemployment statistics. Similar conclusions emerge from meta-studies (quantitative studies of studies) in the United States, the United Kingdom, and in developed economies in general.

These findings, however, remain controversial; other reviews conclude that employment effects are less benign and that minimum wages reduce employment opportunities for less-skilled workers. In developing countries, findings also seem more mixed and country-specific, which points towards the importance of monitoring the effects of minimum wages at country level. An additional concern in developing countries is that instead of causing lower employment, minimum wages that are too high may cause employees to be displaced from the formal to the informal economy.

Global Living Wage Coalition, Methodology for Estimating a Living Wage^{^[15]}

This methodology has been used to estimate living wages in nine countries for a multi-national corporation while it was being developed and has now been used to estimate living wage for over 30 additional locations globally for the GLWC, with strong uptake and interest among both local and international stakeholders.(…)

The living wage methodology has two main components. The first component estimates cost of a basic but decent lifestyle for a worker and his/her family in a particular place. The second component determines if the estimated living wage is being paid to workers. (…)

I. Estimating the Cost of a Basic but Decent Lifestyle for Workers and Families

In the first step, living costs are divided into three categories: food, housing, and other essential needs.

Food costs are estimated based on: (i) a low cost nutritious diet that meets World Health Organization (WHO) recommendations on calories, macronutrients, and micronutrients and is consistent with local food preferences and a country’s development level; and (ii) local food prices for the types, qualities, and quantities of foods that workers typically buy based on new data collection that involves workers and key informants. (…)

Housing costs are estimated using international (UN-HABITAT) and national standards for decency (e.g. dwellings located outside slums and unsafe areas that have permanent walls, roofs that do not leak, and adequate ventilation; amenities such as electricity, water, and sanitary toilet facilities; and sufficient living space so parents can sleep separately from children). (…)

Lastly for practical reasons, cost of other essential needs is estimated using an extrapolation method based on secondary household expenditure data. This is then “post checked” to make sure that sufficient funds are included for health care, education, and transportation. (…)

Total cost per capita of a basic but decent standard of living is then scaled up to arrive at a cost for a typical family size in the area. A small margin is then added to provide for unexpected events and emergencies such as illnesses and accidents, to help ensure sustainability and avoidance of the perpetual poverty trap. To arrive at the living wage estimate, the estimated total cost of a decent standard of living for a typical family is then defrayed over the typical number of full-time equivalent workers per family for that location. (…)

This methodology is a practical compromise between separately estimating cost of each and every expense families have, and the most common approach currently used for estimating living wage in developing countries, which uses just two expense groups (food costs based on a model diet and nonfood costs based on secondary data). Using normative standards for decent housing and estimating housing costs separately (not as part of nonfood costs, as in typical methodologies) ensures that living wage estimates enable workers to afford decent housing. In contrast, typical methodologies rely on available expenditure data to estimate housing costs and so replicate current (often substandard) housing conditions. Our methodology also better allows for different living wage estimates for rural and urban areas, as housing costs are usually the most important cause of differences in living costs.

II. Determining if a Living Wage is Being Paid

To determine if a worker receives a living wage, the methodology takes into account how workers are paid. For example: (i) overtime pay is excluded because living wage needs to be earned in standard working hours; (ii) productivity bonuses and allowances are excluded unless they are guaranteed; (iii) mandatory taxes are taken into consideration because sufficient disposable income is required so workers can afford a decent living standard; and (iv) fair and reasonable value for in-kind benefits provided is taken into consideration, because in-kind benefits reduce the amount of cash income workers need for a decent living standard. However, since too great a reliance on non-monetary benefits hinders empowerment and free choice, the methodology includes rules on how to value in-kind benefits to ensure that their value is fair and reasonable.

The methodology also include guidances on how to check wage levels in different labour situations (e.g. standard employment, temporary or seasonal labour, piece rate).

Involvement of Local Stakeholders

The process of estimating a living wage for a particular location involves consultation with and the participation of local stakeholders, including trade unions and employer organisations when present. The goal of the estimation process is to obtain a credible living wage estimate that stakeholders are likely to view as legitimate and reasonable regardless of whether or not local employers feel they can pay this living wage. Local stakeholders are closely involved in the collection of local food and housing costs, based on visits to workers’ homes and places where workers shop for food; workers provide information on local preferences and living conditions; employers and workers provide information on in-kind benefits, bonuses, and deductions from pay; and, before final conclusions are taken, stakeholders are asked to provide feedback and suggestions on preliminary living wage estimates.

ACT (Action, Collaboration, Transformation)^{^[16]}

Background

ACT (Action, Collaboration, Transformation) is a ground-breaking agreement between global brands and retailers and trade unions to transform the garment and textile industry and achieve living wages for workers through collective bargaining at industry level linked to purchasing practices.

Collective bargaining at industry level means that workers in the garment and textile industry within a country can negotiate their wages under the same conditions, regardless of the factory they work in, and the retailers and brands they produce for. Linking it to purchasing practices means that payment of the negotiated wage is supported and enabled by the terms of contracts with global brands and retailers.

ACT is the first global commitment on living wages in the sector that provides a framework through which all relevant actors, including brands and retailers, trade unions, manufacturers, and governments, can exercise their responsibility and role in achieving living wages.

ACT members have agreed the following the principles:

A joint approach is needed where all participants in global supply chains assume their respective responsibilities in achieving freedom of association, collective bargaining and living wages.
Agreement on a living wage should be reached through collective bargaining between employers and workers and their representatives, at industry level.
Workers must be free and able to exercise their right to organize and bargain collectively in accordance with ILO Conventions.

Memorandum of understanding between ACT corporate signatories and INDUSTRIALL Global Union on establishing within global supply chains freedom of association, collective bargaining and living wages

Goals and Purpose

This Memorandum of Understanding (MoU) aims at creating a cooperation between IndustriALL Global Union and ACT (Action Collaboration Transformation) corporate signatories (“We”) in order to achieve living wages for workers in the global textile and garment industry supply chains through mature industrial relations, freedom of association and collective bargaining. (…)

There are two sustainable mechanisms that we consider have the capacity to deliver freedom of association, collective bargaining and living wages to any scale, while setting a level playing field:

• Industrywide collective agreements

• National minimum wage fixing enforcement mechanisms

Framework for Action

We recognise that business security and commitment to production countries and suppliers are a key enabler for paying living wages in conjunction with all other pillars of our joint approach. (…)

4) Corporate signatories will work to ensure that their respective purchasing practices support long-term partnerships with manufacturers in support of ethical trade. We, ACT corporate signatories and IndustriALL, will jointly design a strategy for this which takes into account the nature of the industry.

5) Corporate signatories will ensure that their purchasing practices facilitate the payment of a living wage as defined in this document

7) The corporate signatories will exchange the necessary information for this programme regarding their strategic supplier factories with IndustriALL for the purpose of effective implementation in the target countries.

8) The corporate signatories will work with their supplier factories and IndustriALL will work with its affiliated unions in target countries to bring them together to negotiate towards a living wage.

9) We will provide capacity building to both groups in support of this process, including training of managers and workers on freedom of association and collective bargaining.

14) IndustriALL and ACT signatories will make joint approaches to governments in support of higher minimum wage outcomes, including brand commitments to continued sourcing, taking into account the gap between the minimum wage and a living wage, cost of living increases, productivity and efficiency gains and the development of the skills of workers, carried out in cooperation with unions at workplace level.

Negotiating solutions^{^[17]}

Ethical Trading Initiative, A Living Wage for Workers^{^[18]}

Why is living wage rising on the global agenda?

The rising phenomenon of “the working poor” since the 2008 recession – ie working people who are unable to make ends meet because wages are too low.
The gap between national minimum wages and cost of living increasing
The growing awareness and concern of consumers about working conditions (heightened further by incidents such as the Rana Plaza collapse)
The continued development of international standards for business and ethics.

What are the challenges to achieving living wages?

Wage levels come about through a complex economic process of labour supply and demand, through negotiations, established policy norms, the power relations between workers and employers etc. Artificially setting wages may be impracticable or may lead to unintended consequences.
If overall budgets are not increased, increasing wages for some workers could lead to others being laid off or not recruited – ie increased unemployment
Lower skilled workers, may be priced out of the job market because the value they add is not seen to be equivalent to the new higher level of wages
Companies may be unwilling or unable individually to increase the prices they pay to suppliers for products
In a top down approach, if higher prices are paid, suppliers may not pass price increases on to workers, particularly if workers have no bargaining power.

What can brands and retailers do?

It is important for companies to look beyond definitions and calculation methodologies and to think about inclusive mechanisms that ensure that a living wage is a product of a process of negotiation which is able to respond to externalities over time, and how this is accommodated in the value chain. As part of this process it is vital to consider the particular rate of pay in a particular location and industry. Companies should:

Build long term, mutually trusting relationships with suppliers and work together to understand the drivers of prevailing wage levels and how they can be influenced
Consult with workers/managers to calculate living wage levels for the area/industry
Advocate for mechanisms to set national minimum wages that equate to living wages
Ensure cost of living wages are accommodated throughout the value chain and if necessary in product price
Improve workers’ collective bargaining power and ensure their right to freedom of association is respected.
Incentivise employers to pay living wages – eg by increasing orders to those suppliers.
Improve productivity and efficiency to enable the value chain to accommodate wage growth.
Mitigate the impact of wage increases on unemployment or other unintended consequences in your supply chains.
Join forces with other ETI members, companies, NGOs and trade unions, to share lessons on working towards living wages.

Nike, Sustainable Business Report^{^[19]}

Fair compensation, meaningful benefits

Every contract factory worker in our supply chain has the right to a standard of living that’s adequate to support them and their families. We, like many other brands, have committed to work with our suppliers to progressively meet employees’ basic needs, including some discretionary income. We believe that the wages can increase as overall factory operational efficiency improves.

A better run factory should be more profitable and should then be able to pay higher wages, in exchange for benefits such as lower turnover, higher productivity, and better quality product. Workers are key to delivering on the promise of high quality and high productivity, and need to be compensated accordingly.

Since FY15, we have partnered with a leading academic, factory management, workers, and third-party experts to see if we could increase the value created in a factory and see it shared between management and workers.

Our pilot tested three different approaches, each focusing on productivity improvements, shared value creation, and employee engagement.

After collecting baseline data, we spent a full year building the foundation of a better running factory, which included all key areas within our Lean 2.0 approach. These covered line operations, supervisory skills, leader standard work, relief teams, engagement and communication processes, social dialogue, stress resilience activities, and management skills. During the second year, we tested different ways to align compensation with Lean principles, make pay more transparent to workers, and empower workers to participate in decision-making and problem-solving.

The results show that worker agency – their ability to voice their views and opinions – was important to good business performance. Collaborative problem solving between workers and supervisors increased, while self-reported levels of stress fell. Key business metrics, like turnover, productivity, and profitability, all improved. And, importantly, take-home pay went up.

H&M, Fair Living Wage Strategy

The people making H&M group’s products should have good working conditions and earn a fair living wage. For us, this is indisputable and the reason why we have developed a global fair living wage strategy.

We define a fair living wage as one which satisfies the basic needs of workers and their families as well as providing some discretionary income. A fair living wage should be revised annually, and negotiated regularly.

Improved workplace dialogue and industrial relations – where freedom of association is respected, where workers’ representatives have a voice and where trade unions can negotiate and bargain collectively – are preconditions for lasting improvements for the garments workers in all areas of working conditions, including fair living wages, but also for stable and predictable production markets. That is what our Fair Living Wage strategy, that we developed in 2013, is built upon. Here’s how we work:

We engage in dialogue with local governments to further develop the legal framework needed for improved industrial relations.
We engage with factory owners to enable them embracing the importance of well-functioning industrial relations as well as implementing well-functioning wage management system. Improved wage management systems and workplace dialogue are implemented at an increasing number of factories and countries.
We train workers and management about their rights and responsibilities and facilitate the democratic election of employee representatives through trade unions or worker committees. For example, in 2017, 100% of the garment manufacturer units in Bangladesh producing for us, conducted democratic election of worker representatives. In total, 2,882 persons were elected and 40% of those were women.
We ensure that we maintain good purchasing practices by being long-term and stable business partners which helps enable factories to pay a fair living wage.
To really drive our fair living wage strategy forward we also collaborate with industry experts, NGOs, unions, stakeholders and other brands. One example is our collaboration through ACT (Action, Collaboration, Transformation) (…)

Lawton and Pennycook, Challenges and Opportunities of a Living Wage^{^[20]}

Key findings

For over a decade the living wage has served as a rallying cry for decent pay above the national minimum. Harnessing the power of social norms, it has raised the profile of working poverty and has broadened the debate about low pay. Much of the idea’s power lies in its simplicity; the view that working people should be paid enough to afford a minimum acceptable standard of living. And much of its vibrancy lies in a bottom-up, community organising approach, which has caught the imagination in a world in which worker empowerment was often assumed to be in serial decline.

The question is: how can public policy support a civil society campaign without undermining these great strengths? The answer will not be a Whitehall [British government] diktat and nor is it likely to be a single, simple policy ruse. Government will need to find ways of working in partnership with business, workers and civil society and adopt a mixture of approaches, leading by example, unleashing data into the hands of campaigners, raising the heat on social norms, and finding new ways to reward local areas for innovation.

Reynaud, The ILO and the Living Wage – A Historical Perspective^{^[21]}

The objective, as it was stated, is to provide or ensure to all workers either “an adequate living wage”, in Part XIII of the Treaty of Versailles [1919], or “a minimum living wage”, in the Philadelphia Declaration [1944] as well as in the 2008 Declaration, which just quoted the previous Declaration. But further to these solemn statements, the concept of a living wage does not appear in ILO’s instruments related to the closely linked question of minimum wages, which concern the machinery of “minimum wage fixing”.

Recently, there has been a renewed interest in the living wage, notably among multi-national enterprises and NGOs (…) From the beginning the notion of a living wage was linked to that of a minimum wage, and we will see how the principle, from an objective, became a criterion among various criteria in minimum wage fixing and was finally subsumed under the criterion of the “needs of workers and their families”.

The Treaty of Versailles [establishing the International Labour Organization states in] the preamble: “[…] whereas conditions of labour exist involving such injustice, hardship and privation to large numbers of people as to produce unrest so great that the peace and harmony of the world are imperilled; and an improvement of those conditions is urgently required: as, for example, […], the provision of an adequate living wage1, […].”

The Declaration of Philadelphia was adopted by the International Labour Conference during its 26th Session in Philadelphia on 10 May 1944 (…): “(d) policies in regard to wages and earnings, hours of work 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”.

Wages are an especially important issue for the ILO since its origin. They are essential for workers as the source of their livelihood and, at the same time, low wages are used in some countries as a comparative advantage in international trade. The tension between these two dimensions is closely linked to the very reason for establishing the Organization in 1919: to avoid social unrest that could imperil “the peace and harmony of the world” in improving labour conditions, in the context of international economic competition and free trade. With the experience of the pre-WWI economic globalization – the “first globalization” –, it was clear for the negotiators at the Paris Conference that to improve labour conditions worldwide an international labour organization was needed, as “the failure of any nation to adopt humane conditions of labour is an obstacle in the way of other nations which desire to improve the conditions in their own countries” (Treaty of Versailles, Part XIII, preamble, par. 3). Among the urgent priorities for improvement, they identified wages and set an ambitious objective for them: the provision of an adequate living wage, understood as a minimum wage.

The explicit aim [of the International Labour Office, the permanent secretariat of the ILO] was to measure the extent of social dumping, the comparative advantage of reducing the cost of production through wages limitation. (…) [At the 1927 ILO Conference], Britain, as a major industrialized country with minimum wage legislation, was obviously keen to have other countries adopt such legislation and ensure a level playing field in international trade. Other delegates had a very cautious reaction to the initial proposal, even though it was a “modest one”, only dealing with minimum wage fixing machinery. After discussion, revision and clarification, the proposal was finally adopted with the clear understanding that it had a very limited scope: the intention was in no way to fix wages or an international minimum by a convention, but just to set general principles for national governments to establish minimum wage-fixing machinery. (…)

The issue of minimum wages came back on the agenda of the ILO in the 1960s. The context was dramatically different from the 1920s, especially with the substantial expansion of ILO membership and a corresponding wider variety of interests represented with the great number of new Nation States in the previously colonized territories. (…) This led to the adoption by the Conference in June 1970 of the Convention 131 and Recommendation 135 on Minimum Wage Fixing. The objective of a “living wage” is re-introduced in these instruments under the notion of “the needs of workers and their families” as a criterion to determine the level of minimum wages, taking into account the general level of wages in the country, the cost of living, social security benefits and the relative living standard of other social groups. But economic factors should also be taken into consideration in fixing minimum wage levels, including the requirements of economic development, levels of productivity and the desirability of attaining and maintaining a high level of employment.

Background (Cambodia)

Minimum Wage Setting in Cambodia^{^[22]}

Instruments (Cambodia)

Labour Law^{^[23]}

Article 103: Wage includes, in particular:

actual wage or remuneration;
overtime payments;
commissions;
bonuses and indemnities;
profit sharing;
gratuities;
the value of benefits in kind;
family allowance in excess of the legally prescribed amount;
holiday pay or compensatory holiday pay;
amount of money paid by the employer to the workers during disability and maternity leave.

Wage does not include:

health cares;
legal family allowance;
travel expenses;
benefits granted exclusively to help the worker do his or her job.

Article 104: The wage must be at least equal to the guaranteed minimum wage; that is, it must ensure every worker of a decent standard of living compatible with human dignity.

Article 105: Any written or verbal agreement that would remunerate the worker at a rate less than the guaranteed minimum wage shall be null and void.

Article 107: The guaranteed minimum wage is established without distinction among professions or jobs. It may vary according to region based on economic factors that determine the standard of living.

The minimum wage is set by a Prakas (ministerial order) of the Ministry in Charge of Labor, after receiving recommendations from the Labor Advisory Committee. The wage is adjusted from time to time in accordance with the evolution of economic conditions and the cost of living. Elements to take into consideration for determining the minimum wage shall include, to the extent possible:

the needs of workers and their families in relation to the general level of salary in the country, the cost of living, social security allowances, and the comparative standard of living of other social groups;
economic factors, including the requirements of economic development, productivity, and the advantages of achieving and maintaining a high level of employment.

Article 108: For task-work or piecework, whether it is done in the workshop or at home, the wage must be calculated in a manner that permits the worker of mediocre ability working normally to earn, for the same amount of time worked, a wage at least equal to the guaranteed minimum wage as determined for a worker.

Article 357: The Labor Advisory Committee has the mission primarily to study problems related to labor, the employment of workers, wages, vocational training, the mobility of labor force in the country, migrations, the improvement of the material and moral conditions of workers and the matter of labor health and safety.

The Labor Advisory Committee has the following duties:

formulate recommendations on the guaranteed minimum wage;
render advice beforehand in order to extend the scope of a collective agreement or, if there is no collective agreement, give advice eventually on any regulation concerning the conditions of employment in a given profession or in a certain sector of activity.

Art 369: Those guilty of violating the provisions of Articles (…) 104 [guaranteed minimum wage] (…) are liable to a fine of sixty-one to ninety days of base daily wage or to imprisonment of six days to one month.

Prakas on Minimum Wage for Textile, Garment and Footwear Sector^{^[24]}

Article 1: To add $3 on top of $187 (One Hundred and Eighty Seven US Dollars) proposed by the National Minimum Wage Council as the monthly minimum wage for workers in textile, garment and footwear sectors for 2020.

The minimum wage for workers in textile, garment and footwear sector for 2020 shall be set officially as $190 (One hundred and Ninety US Dollars only) per month. (…)

DFDL, Cambodia Legal Update: Law on Minimum Wage^{^[25]}

The Law on Minimum Wage was promulgated on 6 July 2018 and now guarantees a minimum wage for employees covered by the provisions of the Labour Law. A tripartite National Council on Minimum Wage (“NCMW”), comprised of the government, employer representatives, and employee representatives, will be established to study, research and provide recommendations on the determination of minimum wages and other benefits for persons covered by the Labour Law. Subject to the discretion of the NCMW, key factors in determining the minimum wage include (1) social considerations (such as inflation rates and living expenses); and (2) economic considerations (such as productivity, competition, job market status and profitability of a particular industry). The discussions on minimum wages by the NCMW must be undertaken annually (unless decided otherwise by the NCMW) and in accordance with the procedures set out in this new law.

Based on the NCMW’s recommendation, the minimum wage will be determined by a Prakas issued by the Ministry of Labour and Vocational Training (“MLVT”) and must take effect from 1 January of the subsequent year. The MLVT may prioritize implementation of the minimum wage based on economic activity, industry sector or region. (…)

World Bank, Growth in Cambodia Remains Strong^{^[26]}

Driven mainly by resilient construction and garment sectors, Cambodia’s economic growth remains strong, projected to reach 6.9 percent in 2017 and 2018, according to a new World Bank report. While the outlook remains favorable, there are some signs of moderation, in particular in the construction sector (…). Garment exports are facing strong completion. Due to US dollar appreciation, rising labor costs, and competition from other regional low-wage countries, growth in garment exports decelerated, expanding at 8.4 percent year-on-year in 2016, compared with 12.3 percent in 2015. (…)

The report highlighted key areas that will help safeguard Cambodia’s strong growth:

Boosting labor productivity to compensate for rising real wages. A top priority will be to improve the quality of basic education and to promote vocational and technical skills, while reducing energy costs to attract and compete in high value-added and more sophisticated manufacturing;
Improvements in public service delivery, given that the public sector is a major service provider and a key facilitator for private sector development;

Enhanced efforts to improve public investment management legal framework and implementation capacity in order to scale up government-financed capital spending to compensate for a gradual reduction in development partner-funded public capital investment.

ILO, Strong Export and Weak Employment in the Cambodian Garment Sector^{^[27]}

3. Employment and wages

(…) The minimum wage of the garment and footwear sector increased every year between 2013 and 2017, rising from US$ 80 in 2013, to US$ 100 in 2014, to US$ 128 in 2015, to US$ 140 in 2016 and US$ 153 from 1 January 2017. The rising minimum wage in recent years has generated increasing discussion of the need to monitor wage trends and to ensure sustainable wage policy in this largest exporting sector. The increase in the minimum wage has contributed to improving living conditions of hundreds of thousands of low-paid workers, but at the same time economic factors must be taken into account in adjusting wages.

Largely due to these minimum wage increases, the average monthly earnings (including overtime) of Cambodia’s garment and footwear workers increased from US$ 145 in 2014, to US$ 175 in 2015 and to US$ 195 in 2016. If this average monthly wage is calculated in inflation-adjusted (real) terms, the real average monthly wage of these workers rose from US$ 127 in 2014 to US$ 151 in 2015 and to US$ 163 in 2016, expressed in 2010 prices. In other word, real average monthly wages/earnings were 8.0 per cent higher in 2016 than they were in 2015; this rate of real average monthly wage growth was down from 19.3 per cent the previous year.

Schill, The Footwear Sector – New Opportunities for Cambodia?^{^[28]}

Employment and wages in the footwear sector Cambodia’s main competitors in footwear production in Southeast Asia are Vietnam and Indonesia (see table 1). These three countries also have similar minimum monthly wages in the sector: Cambodia (US$182), Vietnam (varies across regions, US$180 in Vinh Duong, US$171 in Dong Nai), Indonesia (varies across regions, US$193 West Java, US$272 Banten). Monthly wages in both the garment and footwear sectors have almost become equal for the first time in 2018. Before that, the wage in the footwear sector has been consistently lower than in the garment sector.

Banerji et al., Review of H&M Group’s Roadmap to Fair Living Wage^{^[29]}

Executive Summary

H&M group has taken bold action in becoming the first apparel brand to address the complex wage issue and set significant public goals to help achieve what it terms “fair, living wages” (FLW) for garment workers. It has sought to deliver its Fair Living Wage Roadmap (FLWR) amid challenging market conditions, political instability and intense stakeholder scrutiny. (…)

The Roadmap has four interlocking components:

H&M group action to improve its purchasing practices and planning to enable suppliers to pay a Fair Living Wage.
Supporting suppliers in developing fair and legal contracts and establishing pay structures that enable a Fair Living Wage.
Developing better industrial relations, focusing on worker representation through social dialogue at factory level to empower workers to negotiate improved pay and labour conditions.
Encouraging government to set up tri-partite process that sets minimum wages through a fair negotiation with labour market stakeholders and reviewing annually.

The goals H&M defined in 2013 were:

By 2014, develop a roadmap addressing H&M’s purchasing practices to improve existing price method and improve purchasing plans.
By 2014, implement and evaluate in three model factories the Fair Wage Method, and by 2018 all H&M’s strategic suppliers should have well-functioning pay structures.
In 2013, launch an industrial relations project in Cambodia, and in 2014 expand H&M group’s existing social dialogue project in Bangladesh to cover 15% of suppliers’ factories and by 2018 100%.

3.4 Implementation

H&M group sought to influence change among suppliers, workers, its own purchasing practices, and within the governments of production countries.

3.4a Suppliers: Effective wage management structures.

(…) H&M group piloted the FWN’s Fair Wage Method (FWM), based on the 12 Dimensions of a Fair Wage, in three pilot factories: two in Bangladesh and one in Cambodia. The FWM is a comprehensive system encompassing 12 key aspects that combine to achieve fair wages, based on extensive research by Professor Daniel Vaughan-Whitehead and associates. Following the pilot, H&M group engaged with the FWN to help deliver the FWM in 336 strategic factories in Bangladesh, Cambodia, India, Turkey, Vietnam and Pakistan. This brought about numerous improvements, including implementation of wage grids, reforms of pay systems, shift from piece rates to basic wage plus bonuses, reduction of working hours without wage loss for workers, and fair wage remediation plans signed by both employers’ and workers’ representatives. Based on this experience, H&M group subsequently developed its own, slightly less comprehensive Wage Management System (WMS), in order to reach more workers by making the requirements more readily understandable for suppliers, and a clearer business case for suppliers to participate. By training a further 190 factories on H&M group’s own system, the company reached a combined total of 500 factories by the end of 2018.

4.4 Observations: Suppliers – Wage Management Systems

(…)The FWN’s own 2017 evaluation of 198 of the 336 suppliers implementing the FWM found that while there was definitely room for improvement on remunerating workers in line with their skills and workplace dialogue, wages had typically risen in participating factories. In Cambodia, wages at the 19 participating factories had risen by an average of 16%, compared to the initial assessment in 2016, which could be partially attributable to the FLWR but also reflects a general trend in Cambodia. (…)

The Garment Worker Diaries study, a 2016-2017 research project on garment workers’ wages in Bangladesh and Cambodia, led by Microfinance Opportunities (MFO), has also found that “by almost every variable, workers are better off in H&M group factories”. (…)

4.6 Observations: Company – Purchasing practices

(…) H&M group has shared this approach through a workshop in Cambodia with all ACT members, through which members explored how to take wages out of the price equation. It has also introduced an app to help calculate wage components, including cost per minute and factory efficiency. Once the wage element is set aside, suppliers and H&M group can look at where else they can make savings instead. H&M group describes this as a “scientific” process for establishing purchasing practices that support decent wages. (…)

4.7 Observations: governments – minimum wage advocacy

(…) In Cambodia, around 50% of all garment workers work for ACT member suppliers, most of whom supply H&M group. The company therefore perceived a strategic advantage in opting to use ACT as a primary vehicle to help achieve its ambitions on minimum wage advocacy as well as its purchasing practices ambitions. However, CCC considers that this has also slowed the rate of progress on H&M group’s original Roadmap commitments. The campaign group also suggests that ACT, despite its good intentions, ought to agree binding goals, in a similar way to the Bangladesh Accord on Fire and Building Safety, in order to drive concrete progress. This is a matter for ACT as a whole to consider, rather than H&M group in particular. (…)

Edwards et al, Corporate Commitments to Living Wages in the Garment Industry^{^[30]}

Over the last decade, leading global corporations in the garment industry have begun to make commitments to deliver living wages to the workers that make their clothes. For instance, in 2013 the Swedish multinational fashion retailer H&M published its Fair Living Wage Roadmap which set public goals for the payment of a ‘fair living wage’ in its supply chains. PVH, the global apparel company, worth US $9.7 billion, that owns brands like Tommy Hilfger and Calvin Klein, has ‘a goal of paying all workers no less than a living wage.’ Primark’s supplier code of conduct now requires that ‘living wages are paid’. Major multinational corporations (MNCs) are also increasingly signing up to participate in and co-operate with external initiatives that aim to achieve living wages for workers through a variety of means. These include, for example, schemes, agreements and wage commitments promoted by organisations such as the International Labour Organisation (ILO) and multi-stakeholder initiatives (MSIs) such as ACT (Action, Collaboration, Transformation) and the Fair Labor Association’s Fair Compensation strategy. (…)

BOX 1: Prominent External Initiatives Relevant to Living Wages in the Garment Industry

ACT (Action, Collaboration, Transformation): ACT is an agreement between global corporations and IndustriALL global union. It aims to implement industry-level national collective bargaining agreements (efforts are currently focused in Cambodia and Turkey) in an effort to secure a wage that companies will take into account in their purchasing practices.
Fair Labor Association Fair Compensation Programme: This programme offers companies a Workplace Code of Conduct to be drawn upon and also a Wage Data Collection Toolkit that enables corporations to benchmark suppliers’ wage payment and progress based a number of wage indicators such as the Asia Floor Wage, World Bank gross national income per capita and prevailing industry wages. It increases visibility of wage benchmarks but does not offer a broad strategy for living wage payment.
German-Dutch Sustainable Textiles Cooperation Agreement: These initiatives are German and Dutch state initiatives that aim to harmonise sustainability requirements and assist companies in implementing due diligence. Companies may opt into both simultaneously. The German initiative announced a 2018 Partnership Initiative on Living Wages in Cambodia and Indonesia, aiming to raise wages above the minimum wage, defining a living wage as one that allows ‘a worker to have a dignified existence’.

Sotheary, Unions: Change Minimum Wage Law^{^[31]}

More than 40 unions have joined together to ask the Labor Ministry to make changes to 10 articles in the draft Minimum Wage Law, saying the law did not cover all sectors and restricted the rights of union representatives in wage negotiations among a host of other issues. More than 50 members from the 40 unions, along with international civil society organizations, met yesterday to discuss the law and review its six chapters and 33 articles. (…)

“The point that we will strongly discuss is article 9, which says that the minimum wage may vary by region or economy,” he said. “We cannot accept this because if the minimum wage varies by region, investors will see the opportunity and only invest in areas that are far away. It will affect the national minimum wage negotiations, which may decrease from $153 to $120.”
Unions also plan to ask the ministry to remove article 28 of the law, which lays out punishment for individuals or organizations that do research on wages in the country. The law says that only the National Council for Wages has the right to study wages in Cambodia and anyone found doing their own investigation will be fined 10 million riel (about $2,500). “It’s a terrible thing that is unacceptable for the country and the wage law should not have made it because it is similar to the union law, which restricts the freedom of unions,” he said. (…)

WageIndicator Foundation, Living Wage Series – Cambodia^{^[32]}

The living wage is based on the concept that work should provide an adequate income to cover the necessary living costs of a family. WageIndicator uses prices from the cost of living survey to calculate living wage in more than 60 countries. The living wage is an approximate income needed to meet a family’s basic needs including food, housing, transport, health, education, tax deductions and other necessities.

The following table summarises the varying expenditure and income needs for the three commonly occurring family household compositions.

Expenditure and living wage calculation (monthly rates in riel)

	Typical family	Standard family	Single-adult
	from-to	from-to	from-to
Food	666300-930400	567000-791900	141800-198000
Housing	508900-837400	508900-837400	171100-269600
Transport	40000-80000	40000-80000	20000-40000
Health	40000-100000	40000-100000	10000-25000
Education	80000-150000	80000-150000	0
Other costs	66800-104900	61800-98000	17200-26600
Total Expenditure	1402000-2202700	1297700-2057300	360100-559200
Net Living Wage	737895-1159316	720944-1142945	360100-559200
Gross Living Wage	804300-1263700	785800-1245800	392500-609500

Family living wages (monthly rates in riel)

There is not a single answer to what is the adequate cost of living. The result is complex, as the cost of living varies by household composition, location, and employment pattern. The following table presents the Living Wage estimates for a set of most common family household compositions and under different assumptions about working hours.

	from-to
Typical family (two parents + 2.7 children, 1.9 working)	804300-1263700
Standard family (two parents + 2 children, 1.8 working)	785800-1245800
Two parents and two children, 2 working	707300-1121200
Two parents and two children, 1.5 working	943000-1495000
Two parents and two children, 1 working	1414500-2242500
Two parents and three children, 1.9 working	829900-1299500
Two parents and four children, 1.9 working	915300-1418700
Single-adult without children, 1 working	392500-609500

Living wages in context (monthly rates in riel)

The Minimum Wage is a national legally binding obligation on employers which often make no reference to a living standard. Living Wage describes the adequate living standard. The common goal of the many living wage campaigns currently taking place all over the world is to lift Minimum Wages levels to those of the Living Wages. WageIndicator presents Living Wages jointly with Minimum Wages, aiming to raise awareness concerning the remaining differences in levels. Living Wages are presented in context with other wage indicators including prevailing wages of workers over recent years.

	2015	2016	2017	2018
Minimum wage	512000	560000	612000	680000
Living Wage – Single Adult	.-.	.-.	.-.	392500-609500
Living Wage – Typical Family	.-.	.-.	.-.	804300-1263700
Real wage of low-skilled worker	.-.	.-.	.-.	159500-517300
Real wage of medium-skilled worker	.-.	.-.	.-.	883700-1245700
Real wage of high-skilled worker	.-.	.-.	.-.	1398800-2007200

IndustiALL, Adidas, Get off the Sidelines!^{^[33]}

On 29 October, demonstrators in New York City called on major sports brand Adidas to join ACT, the global initiative on living wages. By refusing to join ACT, Adidas is effectively standing in the way of progress towards a living wage for garment workers. (…)

At the rally outside the Adidas flagship store in New York City, around 40 trade unionists called on the sports brand to help reform the industry and stop producing products through poverty wages.

“We are demonstrating here today in solidarity with garment workers in Cambodia and Myanmar and to tell Adidas to get off the sidelines and join ACT, the global initiative on living wages,” (…)

“Suppliers in countries like Cambodia, Myanmar and Vietnam need to know that big brands, including Adidas, are on board,”says Christina Hajagos Clausen, IndustriALL garment director.

IndustriALL, Unions Demand Sectoral Bargaining to Achieve Living Wages^{^[34]}

IndustriALL Global Union garment unions in Cambodia have welcomed a raise in the monthly minimum wage from US$182 to US$190 but reiterated calls for sectoral collective bargaining as a means to reach a living wage. (…)

IndustriALL and its affiliates held two days of meetings and discussed strategies for achieving a living wage through linking brands’ purchasing practices with a sectoral collective bargaining agreement. The affiliates welcomed the ACT brands’ purchasing practice commitments as they agreed that poor purchasing practices lead to excessive overtime, underpaid wages and short-term contracts. In a roundtable discussion “Towards a living wage” IndustriALL affiliates together with major brands sourcing from Cambodia (H&M, Inditex, Primark, Next and Fastretailing) discussed how to achieve better wages in the Cambodian garment sector. (…)

Athit Kong, President of CCAWU and IndustriALL textile and garment sector co-chair, stated: “As Cambodian trade unions, we will continue our fight for better wages and acknowledge the support by the 20 global brands and retailers who have made a public commitment to reform their purchasing practices and actively support sectorial collective bargaining. But for a living wage to become a reality for thousands of Cambodian garment workers – brands such as Adidas, Timberland, North Face need to get off the sidelines and make the same commitment to work with IndustriALL and national trade unions.”

IndustriALL, Garment Unions Step Closer to a Living Wage^{^[35]}

As part of IndustriALL’s living wage campaign garment unions in Cambodia and Myanmar met last week on 20 – 22 August 2018 to develop and agree on joint demands and strategy for national sectoral bargaining in the apparel and footwear sector. Garment unions also discussed and debated brand purchasing practices and their impact on wages and working conditions. The workshops are part of a global programme between IndustriALL Global Union and the Friedrich Ebert Stiftung (FES), which focuses on technical assistance for IndustriALL’s garment affiliates in strengthening their living wage campaigns.

Bird et al., Resilience and Sustainable Poverty Escapes in Rule Cambodia^{^[36]}

The labor market has also grown and structurally transformed towards wage-based employment in manufacturing and services sectors and increased diversity in rural incomes. Growth in textile and apparel exports, the tourism and agriculture sector, and agricultural commodities (e.g., paddy rice and cassava) have helped drive poverty reduction, with employment growth in garments and construction providing low skill, low barrier to entry work, particularly for large numbers of poorly educated rural women. (…)

Non-agricultural self-employment and wage income: Increasingly important pathways

Households are increasingly dependent on self-employment and wage income (panel data analysis) and poverty escapes rely on non-farm activities (qualitative analysis). In the panel data, employment of the household head in non-farm sector (palm juice/ sugar production, small business/petty trade, land sales, migration) is associated with a 71% lower risk of impoverishment relative to a sustained escape from poverty in the regression results. Income sources have changed since 2008 with wages becoming markedly more important in 2011 (5% of all income), 2014 (22% of all income) and 2017 (23% of all income). Seeking work as a casual agricultural laborer is adopted as a coping strategy by some following harvest failure or other shocks, as it will provide a daily income, but for others from poorer households, casual work is an important component of a diversified livelihood (life history interviews) and casual agricultural work is identified in 14 of the 60 life history interviews. (…)

Phon et al, Impact of Increased Minimum Wage on Labor Market and Economy^[37]

I. Introduction

This paper will describe and analysis the impact of labor force in Cambodia and minimum wage constraints in most sectors, especially in labor market, sustainable growth, economic and clearer image of the current labor and future trends by observing the following key economical demographic trends, recent labor market trends, key characteristics of the labor market and lessons from dynamic analysis (demand & supply side) in terms of job, skills content and growth. This also will discover some factors and other than educations that are restricting labor force advancement. These reviews are about the employment and possibility and productivity implications and acquaintances between patterns of growth, productivity and employment intensity and which growth is inclusive to sustainable economy growth of Cambodia. (…)

VI. Economic Impacts from minimum wage and labor force movements in Cambodia

(…) the unemployment rate of Cambodia is still lesser than 1 percent since 2008 -2016 whiles the gain of labor forces are significantly increased every years too. As the result of this, we can say that the minimum wage setting seems not effect too much to labor forces and trade till now while the some definitions of labor needs are not defined well too. (…) In Cambodia, most of workers are women who migrated from provinces, Hence this means that the increase of minimum wage can make women getting more benefits than men in this garment sector. (…)

Market equilibrium with minimum wage regulation and labor force still have occurred many critical issues to close it while the public policies and unions still update all the time as these. Furthermore, worker union still keens to gain more salary to the workers while the government tries to ignore them. Even on 6 July, 2015, the rental regulation was passed to help the worker ‘s expenditure or students and low income earners on rental room, banning from landlord of increasing rent fee in two years after contract signed. (…)

VII. Challenges and some implications

The minimum wage regulation seems fine for worker and labor force and it makes better for welfare of people or worker in which the higher demand of employment in market while the cheap labor burst more capital fly to Cambodia and opportunities to invest. However, some challenges still occurred in this emerging country as well as applied regulations of local garment factories and companies and workers unions, lack of skilled labors and human resource development, social protection to fight vulnerabilities, inequality of gender, healthy industrial environments and well-timed and trustworthy labor market figures. (…)

Questions

How large is the gap between the minimum legal wage and the living wage in Cambodia. How does this gap vary by industry? In what industry is the gap the smallest?
Do you think that the current Cambodian minimum wage setting mechanism is likely to achieve living wage in the near future?
What are the challenges for businesses to achieve living wage for workers in garment and footwear sectors in Cambodia?
Who are the relevant stakeholders that can do more to achieve living wage in Cambodia?
Would multistakeholder partnerships be likely to achieve progress on wages in Cambodia?

Introduction

Main Aspects

Background

ILO, Wages[1]

ILO, Minimum Wages[2]

Living Wage

Marinakis, The Role of ILO in the Development of Minimum Wages[6]

Instruments

The Universal Declaration of Human Rights[7]

International Covenant on Economic, Social and Cultural Rights[8]

ILO, Minimum Wage Fixing Convention[9]

ILO, Minimum Wage Fixing Recommendation[10]

ILO, Declaration on Social Justice for a Fair Globalization[11]

ILO, Minimum Wage Policy Guide[12]

ILO, Labour Protection in a Transforming World of Work[13]

ILO, Global Wage Report[14]

Global Living Wage Coalition, Methodology for Estimating a Living Wage[15]

ACT (Action, Collaboration, Transformation)[16]

Ethical Trading Initiative, A Living Wage for Workers[18]

Nike, Sustainable Business Report[19]

H&M, Fair Living Wage Strategy

Lawton and Pennycook, Challenges and Opportunities of a Living Wage[20]

Reynaud, The ILO and the Living Wage – A Historical Perspective[21]

Background (Cambodia)

Minimum Wage Setting in Cambodia[22]

Instruments (Cambodia)

Labour Law[23]

Prakas on Minimum Wage for Textile, Garment and Footwear Sector[24]

DFDL, Cambodia Legal Update: Law on Minimum Wage[25]

World Bank, Growth in Cambodia Remains Strong[26]

ILO, Strong Export and Weak Employment in the Cambodian Garment Sector[27]

Schill, The Footwear Sector – New Opportunities for Cambodia?[28]

Banerji et al., Review of H&M Group’s Roadmap to Fair Living Wage[29]

Edwards et al, Corporate Commitments to Living Wages in the Garment Industry[30]

Sotheary, Unions: Change Minimum Wage Law[31]

WageIndicator Foundation, Living Wage Series – Cambodia[32]

IndustiALL, Adidas, Get off the Sidelines![33]

IndustriALL, Unions Demand Sectoral Bargaining to Achieve Living Wages[34]

IndustriALL, Garment Unions Step Closer to a Living Wage[35]

Bird et al., Resilience and Sustainable Poverty Escapes in Rule Cambodia[36]

Phon et al, Impact of Increased Minimum Wage on Labor Market and Economy[37]