In order to calculate the gap between current wages and living wages, companies need reliable living wage benchmarks for every region they source from. IDH is committed to assist companies from the starting point of closing living wage gaps with up-to-date, credible living wage estimates that are relevant to their respective locations.
The Anker methodology is widely accepted as the gold standard for measuring living wages and it has played an important role in catalysing wage improvement in global supply chains. We recommend the use of this methodology, which is supported by members of the Global Living Wage Coalition that IDH works with. Additionally, IDH acknowledges that there are other methodologies available to calculate living wage benchmarks. When a benchmark using the Anker methodology is not available, IDH has developed a process to recongnize living wage benchmark methodologies that meet the following criteria:
Estimate living wage based on data collected and representative of the location of the living wage benchmark
Cost of living
Measure the cost of living of a typical family in a region - family size is estimated based on regional (or national) family size data or birthrate data.
Items included in cost of living
The cost of living based on requirements for good nutrition, housing, education, healthcare, household goods, transportation, personal care, etc
Factor in the expected number of working adults in a family by dividing the total cost of living by 1+ the employment rate
Sufficient net income
Account for statutory deductions from gross income, such as taxes, union fee, etc
Are city/region-specific or at least account for urban and rural differences.
Conflict of interests
Must have no inherent conflicts of interests. Methodologies must have sufficient distance from funding sources to maintain integrity. In addition, individual benchmark results must not be influenced by the funding source.
Publish a clear and consistent methodology for data collection and calculation elements.
Update the estimates yearly for inflation. Estimates can be updated for up to 5 years (considering local circumstances) before a new benchmark is needed.
These criteria do not represent a new living wage estimate methodology but provides objective criteria for the minimum elements a living wage methodology needs to include to be recognized by IDH. The list of recognized living wage benchmark methodologies that demonstrated meeting these characteristics will be published on IDH’s website.
Each living wage benchmark is specific to a time and location. Still, it may be the case that more than one benchmark meets the above criteria for a location. In case of multiple benchmarks available, IDH recommends prioritizing benchmarks that are:
- Endorsed or vetted by a legitimate and representative local organization, for instance, through a mechanism for vetting living wage estimates with stakeholders in an open and transparent way.
- Most specific to the area (first location-specific, then urban or rural benchmarks).