Can we negotiate Living Wages through collective agreements?

With the cost of living in many countries far exceeding Minimum Wage rates, workers in low-paying jobs across the world often depend on trade unions to secure fair compensation. Unions, for their part, try to achieve this through collective agreements, negotiated with employers. 

Though this sounds straightforward, it's anything but. So learn our global team members' thoughts on the subject, drawing from academic expertise and on-ground experience in Indonesia and Ethiopia, in this conversation between Paulien Osse, Janna Besamusca, Daniela Ceccon, Nadia Pralitasari, Gashaw Tesfa, and Eyoel Mekonnen.

Paulien: Is there a relation between Living Wages and Collective Agreements?

Daniela: Sure there is! On the one hand, we have the Minimum Wages, which are mandated by law. On the other hand, we have the Living Wages, which are not legally binding, but show how much people should earn to have a decent life. 

Collective Bargaining Agreements (CBAs) can play a crucial role in closing the gap between statutory Minimum Wages and Living Wages. Through negotiation, CBAs can set wage floors that exceed legal minimums and align more closely with Living Wage benchmarks. 

At WageIndicator we always call our Living Wages 'estimates', because they are estimated as a starting point for negotiations. The Living Wages can be achieved in practice through such negotiations, which can also happen in collective bargaining and social dialogue.

Eyoel: We’ve seen this in the Ethiopian flower farms we work in - there are sectoral associations that agree wage levels in their CBAs that are better than Minimum Wages in most industries.

Paulien: Janna, you’ve been studying wage levels in Collective Agreements. Do you think Living Wages are a relevant input for these CBA's? I understand many CBA's don’t include payscales currently.

Janna: Yes, absolutely, I think Living Wage estimates could be useful in two major ways. First of all, in our analyses of collectively bargained wages we notice that many wage floors and pay scales in collective agreements start at or around the statutory Minimum Wage. That's not a problem if the Minimum Wage is a Living Wage, but if the Minimum Wage is set too low to guarantee you can make a living, the Living Wage estimates can give an alternative starting point. 

Secondly, and perhaps even more importantly, the WageIndicator Living Wage estimates can be an evidence-based tool in the negotiations. In the collective bargaining negotiations, Living Wages can support evidence-based arguments for raising bargained wage floors. Furthermore, the availability of up-to-date Living Wage estimates makes it possible for trade unions and employers to make commitments like a shared aim to become a 'Living Wage employer' or 'Living Wage sector'.  I really hope this will start to happen more and more, because when bargaining partners use the living wage estimates in their social dialogue, that's when the global data meet local realities.

Paulien: Fiona, you’ve been talking recently with many trade unionists. You emphasize that Living Wages from WageIndicator are just estimates to be used by trade unions for wage setting. But the reality is that many many multinationals use the WageIndicator Living Wages to define at least their lowest payscales. They play a more crucial role than Minimum Wages or the trade unions wishes. Trade unions, though, often prefer to negotiate wage levels in Collective Agreements that expire in two years, not necessarily Living Wages. What do you think about this?

Fiona: To be honest, it's a great place to be in. The fact that many companies and multinationals take Living Wages seriously and are interested to understand the gap is important. A big reasons why we wanted our Living Wage estimates publicly available was so trade unions could then also check them, and us this information in discussions with companies who claim they (want to) pay a Living Wage. Again - Living Wage estimates are a starting point for negotiation, but the fact that Living Wages are on the agenda of both large brands and employers as well as trade unions is a major step forward in ensuring that wages at the lower end of the labour market will increase towards a Living Wage level. 

Paulien: Nadia, we understand that Indonesian trade unions use WageIndicator estimates to start their negotiations. How does that work? And why don’t they use the government Minimum Wage rates as a basis?

Nadia: To clarify, trade unions in Indonesia do still use the government’s Minimum Wage as a starting point. That’s the legal foundation, and for many companies, it’s still the main reference in wage negotiations. 

But for larger factories (eg: the ones that already pay above the minimum wage), trade unions have started to go a step further. Some of them start looking at WageIndicator’s Living Wage estimates to compare against the actual wages being paid, to check whether actual wages meet the basic living necessities.

This shift is especially noticeable among advanced unions, particularly those we've worked with directly through training and awareness sessions. While the Living Wage concept is still new to many, interest is growing, and more unions are beginning to see it as useful information to strengthen their negotiations.

Paulien: Dani, in Ethiopia I understand that trade unions think the Living wage estimates are useful, but then negotiate wages which are much lower. Why?

Dani: Our Ethiopian team can say more about this, but my understanding of the situation is that wages are extremely low in Ethiopia. There is no Minimum Wage in the private sector, which makes it easy for employers to pay low wages, particularly when people have no choice but to accept the job. 

We haven’t seen many detailed pay scales in collective agreements—at least in the ones we’ve collected from company-level CBAs in the garment sector. So it seems that wages are often negotiated individually, rather than set through broader collective agreements. 

Although wages are an issue in Ethiopia, I think unions often have to weigh wages against other goals, like job security, benefits, or health and safety improvements. In tight economic conditions or sectors like the ones we work in with our project (garments and floriculture), the immediate priority may be to preserve jobs rather than fight for a wage that employers won’t agree to. 

That said, we have heard that there have been significant wage improvements in the flower sector in some farms, so there is hope that the Living Wage will serve as a North Star, something to aim for in future negotiations, even if it’s not always achievable right away. 

Gashaw: In Ethiopia, particularly within the floriculture sector, it is common for neighboring flower farms to form sectoral associations that engage in collective bargaining agreements (CBAs). Through these agreements, they often establish sector-specific minimum wages that are not only mutually agreed upon by the farms involved but also tend to be significantly higher than the national minimum wage or those set in other industries. This collaborative approach has contributed to improved wage standards and better labor conditions within the flower farm sector compared to many other sectors in the country.

Paulien: Nadia, In your view, what needs to change in the wage-setting system in Indonesia to help each worker earn a decent, Living Wage?

Nadia: I think what really needs to be strengthened is the role and impact of collective bargaining, not just as a formal process, but as a shared effort to make sure decent working conditions for all.

Right now, many workers are left out of meaningful collective bargaining negotiations, either because there’s no union in their workplace, or because the existing CBAs don’t reflect the workers' experiences or take cost of living into account. But we can turn this around. It starts with making sure that workers and stakeholders have access to the right tools and information.

For example, when Living Wage estimates are publicly available and easy to understand, trade unions can go beyond just using government-set minimum wages in negotiations. They can make a stronger case, supported by real data on what it actually costs to live.

But data alone isn’t enough. We also need coordination among workers and trade unions, so they speak with one voice. And most importantly, we need employers, brands, and governments to align with this vision. Living Wages can’t be achieved by one side alone. It takes social dialogue, shared responsibility, and commitment from everyone involved in the supply chain.

Paulien: Fiona, Nadia - what would be the ideal situation? And what do you think it will be like if the ILO dream of Living Wages for all comes through?

Fiona: We are very happy to see that the ILO has now also started to recognize Living Wages as an important to wage-setting. Their Governing Body decision from March 2024 on wage-setting, including Living Wages, was a landmark move that ensure that many countries can now also request technical support from the ILO to integrate the concept of Living Wages in their wage setting practices.

As WageIndicator we fully agree with the principles as laid out in this Governing Body decision where there is a strong emphasis on collective bargaining and wage-setting in achieving a Living Wage level. There is a long way to go, but we would love to see a future where wages can be negotiated to achieve a decent standard of living, where Living Wages are also seen and recognised by the government and employers. 

Nadia: For me, the ideal situation is one where every worker earns enough to cover their basic needs, regardless of whether they’re in the formal or informal sector, no matter the industry or region. That’s what a Living Wage is all about.

There are many Living Wage estimates out there, each with slightly different methodologies. But instead of getting caught up in comparing numbers, we should focus on the bigger picture, the principle that all workers deserve wages that reflects the real cost of living.What matters most is the mindset, wages shouldn’t just be set by government, they should also be negotiated with workers through strong and active trade unions. 

July 2025