Adequate Wages: What are we talking about?

• The ILO, in its preamble in 1919, used the concept of an 'Adequate Living Wage', where they set out that 'adequate wages consider both the needs of workers and their families, and economic factors'.
• The concept of 'Adequate Minimum Wage' is used in the EU Adequate Minimum Wage Directive. 
• The EU Directive on Corporate Sustainability Reporting (CSRD) requires companies that are subject to this Directive to report according to the European Sustainability Reporting Standards (ESRS) that require companies to disclose on 'Adequate Wages'. 

The EU Adequate Minimum Wages Directive seeks to ensure that minimum wages are set at an adequate minimum level that ensures that workers can earn a decent living and are elevated out of poverty.

The goal of the EU Directive on Adequate Minimum Wage (2022) is to reduce working poverty and inequality, by establishing a framework to improve the adequacy of Statutory Minimum Wages and enhance effective access of workers to minimum wage protection, including through collective bargaining. The Directive explicitly promotes collective bargaining, recognizing that strong and inclusive collective bargaining systems play an important role in ensuring adequate minimum wage protection. Statutory Minimum Wages in many member states are fixed at wages levels that fall below the 'at risk of poverty threshold'. The poverty threshold is usually set at 60% of the median wage and is understood to be a wage level at which families are not necessarily poor, but are likely to experience spells of poverty at some point. They are vulnerable to poverty or at risk of falling into poverty, when they lose their job or need to make a large unexpected expense.

The Adequate Minimum Wage Directive is not about setting a uniform minimum wage level across the EU, but about specifying criteria to ensure Adequate Minimum Wages are set at national level. The Directive essentially defines a 'double decency threshold' below which no minimum wage should be set, meaning countries may use indicative references values such as 60% of the median wage and 50% of the gross average wage and/or reference values used at national level (Müller, 2024, ETUI) to assess the minimium level for an adequate wage. It's important to note that the Directive only refers to the EU27 countries, but that it will also have an impact for companies working in and/or operating under European laws and regulations.

Across EU countries that will implement the Directive, measures should be put in place to ensure that a minimum wage meets the 'double decency threshold' and that this threshold ensures a decent standard of living. Based on a country-specific basket of goods and services, Member States should therefore examine whether a minimum wage set at 60% of the median wage and 50% of the average wage is sufficient to be able to afford this basket of goods and services. There may be countries where a Minimum Wage that meets this double deceny threshold still does not meet a decent standard of living, which could be due to the fact that overall wages are very low and therefore so will the median and average wages.

Statutory or legal Minimum Wages are usually determined by the government or by social dialogue, and they fix the minimum amount of compensation for labour that employers must pay an employee, regardless of the type of work or the size of the company (Eyraud & Saget, 2005; ILO, 2014). Many countries have one Minimum Wage rate and in most cases it applies to the entire workforce. Other countries apply multiple Minimum Wages for categories of workers defined by sector, industry, firm size, occupational group, skill level, educational level, geographical characteristics, age, or years of service. Approximately half of the countries in WageIndicator's Minimum Wage database that covers 208 countries and territories have multiple rates. The first Statutory Minimum Wage laws that were adopted in the late 19th century aimed to guarantee decent living standards for workers in industrial sectors where market forces failed to do so (Belser & Rani, 2015; Besamusca, 2019; Eyraud & Saget, 2005, 2008; Gautié, 2018; ILO, 2014). More recently, Statutory Minimum Wages have gained some popularity as a pre-distributive policy to ensure that work pays and to curb inequalities (Besamusca, 2019; Dube, 2019; Moore & Tailby, 2015; Vaughan-Whitehead, 2010). This is reflected in the popularity of the so-called Kaitz index, which measures the level of the Statutory Minimum Wage as a share of the median wage in a given country.

WageIndicator keeps track of the relation between the lowest applicable Minimum Wages at country and regional level, and WageIndicator's Living Wage estimates. Currently, 26 countries have a Minimum Wage that is higher than the Living Wage. For a detailed comparison, see: https://wageindicator.org/salary/minimum-wage/minimum-wages-higher-than-living-wages-by-country-and-by-region

Though exact definitions of a 'Living Wage' vary, the ILO reached an agreement during a Meeting of Experts on wage policies in February 2024 which was adopted by the Governing Body in March 2024 in which the ILO denotes that "the concept of a living wage is: 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; calculated in accordance with the ILO’s principles of estimating the living wage; to be achieved through the wage-setting process in line with ILO principles on wage setting.”

The agreement says that the estimation of Living Wages should follow a number of principles, including the usage of evidence-based methodologies and robust data, consultations with workers’ and employers’ organizations, transparency, public availability, and the consideration of regional and local contexts and socio-economic and cultural realities.

The operationalization of the concept of a Living Wage within the broader wage-setting process should be evidence-based and take into account the ILO key principles of wage-setting. This includes strengthening social dialogue and collective bargaining and empowering wage-setting institutions, promoting incremental progression from Minimum Wages to Living Wages, ensuring national and/or local ownership, and recognizing the role of the State. The conclusions also recall that, “the needs of workers and their families and economic factors are the two pillars of wage-setting processes”.

Millions of workers worldwide continue to earn very low wages compared to the cost of living and live in poverty. These workers and their families are unable to afford healthy food, decent housing, medical care or schooling for their children. Often, the minimum wage is not sufficient to cover basic needs. This is where the Living Wage estimates comes in. 

WageIndicator calculates Living Wage estimates currently (July 2024) for 166 countries and 2,700+ regions within, following a robust and consistent methodology. WageIndicator's extensive and always up to date FAQ gives you the latest insights.  

Since 1 May 2024, WageIndicator publishes free and accessible Living Wage data on its national websites. 

WageIndicator works on a global scale with hundreds of global corporations, researchers and NGOs that use WageIndicator Living Wage estimates to understand gaps in wages and work towards a living wage policy for their own operations and the supply chain. WageIndicator supports the use of its Living Wage estimates as a point of departure in wage-setting processes and social dialogue, promoting the incremental progression from Minimum Wages to living wage levels.

For more information, check a recent report by PWC and WageIndicator: Living Wage: An emerging standard, 2023.

Statutory Minimum Wages are the law. However, in many countries in the world, the Statutory Minimum Wage is not enough to cover a workers and their families basic needs and make ends meet.

The concepts of 'Living Wages' and 'Adequate Minimum Wages' are aimed at estimating the level at which wages can be considered sufficient to make a decent living. Adequate wages do this by setting a relative threshold (60% of the median and 50% of the average wage, the 'double deceny threshold' as described above), and represents the level at which we estimate that workers and their families would need to not work in-poverty. This theshold is a statistical construct and it does not measure whether people actually live in poverty or not and has no direct link to the country's national or more local (regional) cost of living but to the average and median wages in a country at large. Living Wage estimates, such as the ones calculated by WageIndicator, calculate the estimated wage level in a more contextualized way by measuring how much goods and services cost in a location that cover basic needs such as housing, healthcare, food, transportation, taxes, education etc. This approach has a more direct link to employees' living expenses. The cost of living approach measures material deprivation (if you earn below the living wage, you can't buy essentials), whereas adequate wages would argue that people who can buy all the essential products and services they need, might still think of themselves as poor because the people around them are better off and/or that the 'adequate' level actually does not allow them to cover all these costs because there is large wage inequality or overall low wages in the country which make these numbers skewed.

In regions and countries with good data infrastructures (EU national bureaus of statistics, European structure of earnings survey, EU Labour Force Survey and the EU SILC database), adequate minimum wages (50%/60%) can be calculated reliably. If such reliable data is not available, the adequate wage threshold might not be posible to calculate or the calculation may be biased. In countries with large informal sectors, as informal workers are likely underrepresented in data collection, surveys and other datasets would likely diproportionslly include formal sector workers. If the Adequate Minimum Wages are calculated using data oversampling formal sector employees, the wage estimates will likely be biased upward. Most regions in the world don't have the infrastructure to gather quality wage data at the necessary scale. It is therefore important to always also look at Living Wage estimates in relation to the Statutory Minimum Wage and Adequate Minimum Wage thresholds, especially since the Adequate Minimum Wage of the basis of the 50%-60% threshold does not necessarily mean that a worker and their family can cover their expenses to live a decent life.

In the European Sustainability Reporting Standards (ESRS) in relation to the European Directive on Corporate Sustainability Reporting (CSRD), companies are required to include a dedicated section in their management report to disclose impacts on sustainabiliy matters. One of these Disclosure Requirements (S1-10) is on 'Adequate Wages'. 

WIthin the light of these requirements, the Statutory Minimum Wage is the lowest threshold. Adequate Minimum Wages based on the 'double decency threshold' for EU countries can be used, but it's important to always also look at Living Wage estimates as an Adequate Minimum Wage based on this threshold does not necessarily mean that workers and their families can cover basic needs.

The reporting requirements refer to that the adequate wage benchmark to be used 'shall not be lower than':

- in the EEA: the minimum wage set in accordance with the EU Directive on Adequate Minimum Wages. Before this enters into application (15 November 2024), where there is no applicable minimum wage determined by legislation or collective bargaining in an EEA country, the adequate wage benchmark that is either not lower than the minimum wage in a neighboring country with a similar socio-economic status or not lower than a commonly-referenced international norm such as 60% of the country's median wage and 50% of the gross average wage shall be used.
- outside of the EEA:

1. the wage level established in any existing international, national or sub-national legislation, official norms or collective agreements, based on an assessment of a wage level needed for a decent standard of living;
2. if none of the instruments identified in (i) exist, any national or sub-national minimum wage established by legislation or collective bargaining; or
3. if none of the instruments identified in (i) or (ii) exist, any benchmark that meets the criteria set out by IDH, including applicable benchmarks such as WageIndicator's numbers, provided the primacy of collective bargaining for the establishment of terms and conditions of employment is ensured.

The lowest wage shall be calculated for the lowest pay category, excluding interns and apprentices. This is to be based on the basic wage plus any fixed additional payments that are guaranteed to all employees. The lowest wage shall be considered separately for each country in which the undertaking has operations, except outside the EEA when the relevant adequate or minimum wage is defined at a sub national level.

The Living Wage estimate is the best threshold to assess if a worker and their family can afford basic needs. As the Minimum Wage (either negotiated or statutory) is the lowest threshold, this should always be the minimum.WageIndicator recommends that it is necessary to see all data in context and follow the steps:

1. Minimum Wages: Check the Statutory Minimum Wage as applicable in the country, sector, industry, region, age-level etc. The Minimum Wage is the law and is the minimum threshold.

2. Collective Agreements Wages: In countries where there is no Statutory Minimum Wage, where applicable and possible, check the lowest negotiated wages as stipulated in Collective Agreements for your sector, industry or company.

3. Check the 'double decency threshold' for a country (50% of the average wage and 60% of the median wage) as well as the Living Wage estimates for a country and region. In all cases where the Living Wage estimate is the highest: opt for these.

4. In case the 'double decency threshold' (50%-60%) is higher than the Living Wage Typical Family Lower Bound estimate, take the Adequate Minimum Wage threshold into account, but double check regional variation of Living Wage estimates in relation to this. Adequate Minimum Wages only account for national level, and be mindful of data biases in high income inequality countries or countries with significant low wages overall.

5. Reporting: The Corporate Sustainability Reporting Directive (CSRD)'s reporting requirements require companies to disclose on an 'Adequate Wage'. Depending on the country circumstances, this 'Adequate Wage' might be the Statutory Minimum Wage, a collectively bargained wage in case of no Statutory Minimum Wage, an Adequate Minimum Wage (as per the double deceny threshold (50%-60%) or a Living Wage estimate. In light of the EU Directive on Adequate Minimum Wages, anticipate that Minimum Wage levels across the EU might go up in the next few years. Outside of the EU, it's difficult to calculate averages and median wages and therefore Living Wage estimates should also be taken into account.

It is useful to see check the gap is between the Minimum Wage and the Adequate Wages as well as the Living Wage estimates. It is possible that even if the double decency threshold is met (50% of the average, 60% of the median), that that wage is still too low for a family to be able to cover a country- or region specific basket of goods and services because of wage inequality, overall low wages, or other factors.

• If the Statutory Minimum Wage is higher than the Adequate Minimum Wage threshold as well as the Living Wage estimates: the Minimum Wage should be sufficient to afford a basic basket of goods and services.
  
  
• If the Adequate Minimum Wage thresholds are above the Minimum Wage as well as the Living Wage estimates, they could be considered but it's important to note that these levels give a country-wide threshold, whereas WageIndicator's Living Wage estimates also account for regional variation. It's is therefore still important to check the regional Living Wage estimates in relation to the Adequate Minimum Wage threshold.
  
  
• If the Living Wage estimates are above the Minimum Wage as well as the Adequate Minimum Wage levels, this would be the best threshold to uphold. Living Wage estimates give the best indication of costs for basic needs in a region in a country and hence if workers and their families would be able to cover these.

Given the EU Directive on Adequate Minimum Wages, minimum wages across the EU will most likely go up significantly (currently only Slovenia meets the double decency threshold), and in many countries outside the EEA, especially with high informality, high income inequality or countries with low overall wages, there might not be enough reliable wage data to properly assess if the Adequate Minimum Wage threshold actually ensures that a worker can cover basic needs.

Another argument for companies working across multiple countries, including outside the EU, would be that the Living Wage estimate as put out by WageIndicator provide a worldwide methodology that is consistent throughout the countries and regions within. Moreover, in many countries, minimum wages are extremely low and vary highely across countries, which indicates that in most of these countries the Statutory Minimum Wage is nowhere near enough for a worker and their family to cover basic needs. Having a globally comparable system of estimates to use for setting a global wage policy might be beneficial for long term strategic decision-making.

In countries with higher levels of inequality, WageIndicator would recommend to rely on Living Wages estimates (cost of living approach). This is because in high inequality contexts, 60% of the median wage and 50% of the average wage is less representative of the population because lower, middle, and upper class households effectively live and work in different labour markets. In a Living Wage (cost of living) approach, prices can be gathered in working and middle class neighborhoods, while the Adequate Minimum Wage threshold has difficulties to adjust for such variation. In contexts with low income inequality, WageIndicator recommends checking both the Living Wage estimates and the Adequate Minimum Wages threshold because the Adequate Wage threshold may sometimes not be enough to cover basic needs, for example when overall wages in the country are very low.