ILO and living wages

Anna Triponel

March 22, 2024
Our key takeaway: Living wages is at the top of the International Labour Organisation’s (ILO) agenda to meet its objective of ensuring protection at work for all. The ILO recognises the importance of living wages as a lever to advance social and economic development, and alleviate poverty and inequality. So what can companies do? Companies can incorporate the ILO’s principles on wage-setting processes when implementing their living wage policies and strategies. These principles are: 1) consider the needs of workers and their families when setting and adjusting wage levels; 2) strengthen social dialogue and empower wage-setting institutions like collective bargaining to ensure workers’ voices are heard throughout the process; 3) anchor the setting and implementation of wages at the national level to ensure local ownership of wage policies; 4) embed gender equality, equity and non-discrimination considerations into its wage strategies; 5) use robust and reliable data for an evidence-based approach; 6) take into account the root causes and challenges of low pay; and 6) assessing the role of other stakeholders in addressing the living wage gap.

The ILO published Report of the Meeting of Experts on wage policies, including living wages (Geneva, 19-23 February 2024), where the Governing Body of the ILO convened a group of experts on wage policies (March 2024):

  • What does it mean and why does it matter?: The ILO defines 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 circumstances and calculated for the work performed during the normal hours of work.” The ILO further grounds the concept of living wage in international human rights law, notably Article 7 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) and Article 23 of the Universal Declaration of Human Rights (UDHR). Under these two treaties, remuneration (pay for one’s work) is a component of the right to just and favourable conditions of work. So why does living wage matter? The ILO emphasises the critical role that living wages play in advancing social and economic development, as well as alleviating poverty: “Decent wages are central to economic and social development and essential in reducing poverty and inequality, as well as in ensuring a decent and dignified life and in advancing social justice."
  • The downfall with existing living wage initiatives: The report recognises the opportunities that corporate living wage initiatives have had in improving the living standard for some workers and their families and shining the light on this topic. However, the ILO states that these initiatives do not wholly align with its principles on wage-setting processes and, therefore, fall short in ensuring living wages for workers and their families. These principles are as follows: 1)  set and adjust wages through collective bargaining and tripartite social dialogue; 2) “[t]ake into account the needs of workers and their families, and economic factors”; 3) “[e]nsure gender equality and non-discrimination”; 4) “[u]tilize robust data and statistics for an evidence-based approach”; and 5) “[c]onsider national circumstances and root causes of low pay.” The ILO calls out tripartite social dialogue, collective bargaining, considering national institutions’ determinations on minimum wage, local context, root causes of low pay, and economic factors as key components that are missing from current living wage initiatives.
  • Recommendations for companies: The report recognises the need to operationalise living wages, which is not a one-size-fits-all approach and must consider local differences within countries. For companies, this may mean: 1) “[c]onsidering the needs of workers and their families and economic factors in wage-setting processes”; 2) “[s]trengthening social dialogue and empowering wage-setting institutions, particularly collective bargaining”; 3) “[p]romoting incremental progression from minimum wages to living wages”; 4) “[e]nsuring national and/or local ownership” by anchoring the process at the national level; 5) “[e]nsuring gender equality and non-discrimination”; 6) “[u]sing robust and reliable data and statistics for an evidence-based approach”; 7) “[t]aking into account the root causes and challenges of low pay, such as unfair distribution of value, low total factor productivity, informality, weak institutions and compliance systems”; and 8) “[r]ecognizing the role of the State.” In particular, the report highlights social dialogue, including collective bargaining, as key to the fair distribution of benefits along global supply chains. Furthermore, the report states that living wage strategies should encompass a broader set of factors: “[a]ny sustainable strategy to promote living wages should go beyond the realm of wage-setting mechanisms alone and include a broader consideration of factors, such as sustainable economic growth and structural transformation, to raise productivity.”

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