EurWORK European Observatory of Working Life
A living wage is the amount of income needed to provide an employee with a basic but socially acceptable standard of living. It is different from the minimum wage, which is an amount set by law to ensure workers have enough income to ensure they are living above the poverty level.
Background and status
The term ‘living wage’ originally emerged in response to the poor employment conditions experienced by the working classes in developed, industrialising economies during the 19th century. Since the 1990s, living wage campaigns have re-emerged in English-speaking developed countries, specifically Canada, Ireland, New Zealand, the United Kingdom (UK) and the United States (US). The main objective of such campaigns has been to draw attention to the perceived inadequacy of existing statutory minimum wage levels and to help secure pay increases for low-paid workers.
Living wage initiatives calculate the income required for workers to achieve a basic standard of living, taking into account existing levels of welfare payments, subsidies and taxes. Calculations are generally made on the basis of input from representative citizens via focus groups using the minimum income standard research method. The aim is to arrive at a social consensus on what goods and services every household should have access to and not be without, such as housing, food, healthcare, transport and education.
The living wage can take various forms. In the US, it is most often an ordinance (a municipal law), obliging firms in a specific city or county that are engaged in public procurement or receiving public funds to pay their employees a set living wage rate. In other countries, such as the UK, the living wage has been implemented as a voluntary scheme with an organising foundation that has multipartite membership. The organisation accredits willing employers, carries out related research and updates the living wage rate on a regular basis.
Like many statutory minimum wages, living wages are generally expressed as hourly gross wage rates. Where living wage schemes are voluntary and have no legal force, they raise the wages for only a small proportion of potential beneficiaries. The biggest operational European living wage scheme is in the UK: it had over 5,500 accredited employers as of September 2019, including one-third of FTSE-100 companies. In 2016, it was estimated to have directly raised wages for around 2–3% of workers earning below the living-wage threshold in the UK and . Furthermore, it is safe to assume that the use of living wage levels as a reference for collective bargaining will have benefited additional workers.
- Website: Living Wage Foundation UK
Where calculated, living wages are invariably higher than the relevant statutory minimum hourly wage. According to recent Eurofound research, living wages were generally found to be between 17% and 80% higher than minimum wages. 
Supporters argue that an important merit of the living wage is that it is based on regularly updated and detailed costings of all goods and services required to achieve a consensually defined standard of living. Such calculations are generally incidental in statutory minimum wage-setting, where the main consideration is the cost of labour rather than the cost of living.
Given differences in weekly working hours and household composition, a ‘one-size-fits-all’ living wage rate cannot deliver on its promise of a basic but decent standard of living. The needs of a two-adult, two-dependent-children household with one full-time worker are greater than those of a single adult without dependents, for instance. Different national campaigns adopt different approaches to resolve this dilemma. On the income side, most assume that all adults in a household are working full time and pay relevant deductions and that the household takes advantage of all state benefits – such as housing, healthcare, transport and in-work benefits – for which it is eligible. On the expenditure side, some schemes base their calculations on the simplest household model – a single adult without dependents (Ireland) – others on a ‘standard’ two-adult two-dependent-children household (Canada, New Zealand), while a third approach is a weighted average of different household types based on prevalence in a given area (UK).
Geography is also a source of important variation in living wage rate calculations. Many of the latest living wage initiatives originated in large cities, where high and rising costs of living – especially housing costs – represent a particular challenge to those on low wages. In the UK, separate living wages are maintained for London and the rest of the UK, the hourly rate in London being approximately 18% higher as of late 2019.
In New Zealand, the first major academic study of the living wage commenced in 2018. A multidisciplinary team from Massey University and Auckland University of Technology is examining the feasibility of a living wage from both worker and employer perspectives. Building on earlier work by the team,  this three-year study uses surveys, interviews and case evidence to scrutinise how it impacts workplaces and the quality of life and well-being of employees. Early findings indicate that income is an important factor for well-being, especially for those at the lower end of the wage spectrum.
At EU policy level, greater commitment to wage and income support for low-paid workers is evident in the fair wage provisions of the European Pillar of Social Rights adopted in 2017. Many of these provisions are expressed in a similar way to living wage initiatives: ‘adequate minimum wages’ and ‘ fair wages that provide for a decent standard of living’, for example. Though a lack of EU legal competencies in relation to wages may remain a barrier to implementation, there is a growing interest in policies coordinating national EU minimum wage-setting, with 60% of national median (or, eventually, mean average) hourly pay considered a progressive benchmark. In its 2018 ‘Europe needs a pay rise’ campaign, the European Trade Union Confederation (ETUC) called for the converging of national minimum wages in the EU with living wage levels defined in this way.
- European Commission: European Pillar of Social Rights
- ETUC: Europe needs a pay rise
Related dictionary terms
ETUC ; labour costs ; pay ; wage drift ; wage spillover
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