The Purchase Power of Living Wages in Different Countries

By Martin Guzi, WageIndicator / Celsi global wages in context

In poor countries Statutory Minimum Wages are too low to provide for a decent living. Only in the richer countries the income of the medium-skilled worker is in line with the living wage. This is the main conclusion of a recent review made of the WageIndicator global datasets, with a focus on the purchasing power of incomes.

The Wages in Context-range

WageIndicator presents living wages in a range called Wages in Context, which is in full made up of the National and World Bank poverty lines, the National Statutory Minimum Wage(s), the living wages and the real or actual wages. The living wages are estimated per country and if data allows at the regional level within countries. The actual wages of workers in low-, medium-, and high-skilled occupations complete the comparison. It is this range from the lowest to the higher pay levels in a country which provides the context which should enable assessment of the current income positions of working individuals and families in their occupation, region, and country.

Comparison of Workers Income Levels between 3 Groups of Countries

The comparison reveals several interesting findings about income levels in countries at differing levels of development. The countries in the present sample are divided in three groups following World Bank income classifications: lower-middle-income, upper-middle-income and high-income economies. Within each country the actual earnings of workers are presented for three occupation groups which are defined by skill requirement, i.e. low-skilled, medium-skilled and high-skilled work.

Where Skilled Workers stay Poor

In the lower-middle-income economies the National Poverty Lines (NPL) are defined around the equivalent of the individual World Bank $2 US poverty line. Based on WageIndicator estimations, the NPL is not sufficient to cover the living cost for an adult individual. The problem arises in countries where the Statutory Minimum Wage rates are defined below the NPL. The estimated living wage in these countries is between 2 and 6 times higher than the Statutory Minimum Wage (e.g. see column LWF in the table below). Even the wages earned in the low- and middle-skilled jobs are most likely insufficient to cover the necessary living costs of a typical family in this lower-middle income group of countries. This group includes Benin, Egypt, El Salvador, Ethiopia, Ghana, Guatemala, Honduras, India, Indonesia, Kenya, Madagascar, Mozambique, Nicaragua, Pakistan, Rwanda, Senegal, Sri Lanka, Tanzania, Togo, Uganda, Ukraine, Vietnam, and Zambia.

Where Minimum Wages and Living Wages Match

In the upper-middle-income countries the amounts defined in the NPL are sufficient to cover the cost of living for an individual. Many countries in this group have a Statutory Minimum Wage that is equal to the living wage. However in a few countries (e.g. Angola) the necessary living wage is more than twice the Minimum Wage. Comparison with real, actual wages reveals that workers in low-skill occupations in any country in this group, do not earn a living wage with which they could support a family. Wages earned in medium-skilled occupations are decent and above the living wage in most of these countries. In this upper-middle-income group of countries are found Angola, Belarus, Brazil, Bulgaria, Colombia, Costa Rica, Kazakhstan, Mexico, Paraguay, Peru, Romania, South Africa, and Turkey.

Where Wages are on Average above Living Wages

Minimum Wages and real, actual wages in high-income countries are on average above the estimated living wage. Wages earned in medium-skilled occupations are above or very close to the living wage in most countries in this group. This high income group consists of nArgentina, Australia, Belgium, Canada, Chile, Czech Republic, Finland, France, Hungary, Italy, the Netherlands, Portugal, Russian Federation, Slovakia, Spain, United Kingdom, and the United States.

Wages in Context-table per country-group, in € per month:

WB=World Bank Poverty Line; NPL=National Poverty Line; LWI=Living wage for one adult; LWF=Living for a typical family; MW=statutory Minimum Wage; LSW=Low skilled earnings; MSW=Medium-skilled earnings; HSK=High-skilled earnings; FR=Fertility Rate. Presented figures are averages calculated for a group.

The lower-middle-income group includes Benin, Egypt, El Salvador, Ethiopia, Ghana, Guatemala, Honduras, India, Indonesia, Kenya, Madagascar, Mozambique, Nicaragua, Pakistan, Rwanda, Senegal, Sri Lanka, Tanzania, Togo, Uganda, Ukraine, Vietnam, and Zambia. The middle-income group includes Angola, Belarus, Brazil, Bulgaria, Colombia, Costa Rica, Kazakhstan, Mexico, Paraguay, Peru, Romania, South Africa, and Turkey. The high-income group includes Argentina, Australia, Belgium, Canada, Chile, Czech Republic, Finland, France, Hungary, Italy, the Netherlands, Portugal, Russian Federation, Slovakia, Spain, United Kingdom, and the United States. 

Source: WageIndicator.

Terminology

Following the World Bank income classification the high income group includes countries with a GNI (Gross National Income) per capita above $12,736 in 2014. The upper-middle-income group consists of economies with a GNI per capita between US$ 12,736 and US$ 4,125 in 2014 and the low-middle-income countries have a GNI of less than US$ 4,125.

The World Bank defines a poor individual as a person who has to live on less than US$2 (PPP) per day. PPP stands for Purchase Power Parity and is a systematic attempt to relate the national currencies to the internationally comparable 2 US dollar by applying country-specific currency conversion rates. WageIndicator uses these publicly available conversion rates and calculates its poverty line-indicator per month (of 30 days) for an individual and a family of four. These figures are then converted from the national currencies to the € at the actual exchange rate, i.e. from day to day.

A National Poverty Line is a minimum income which is considered essential to survive. National definitions of poverty and their practical implementation show great variety. In general wealthy countries deploy more generous living standards to define poverty than poorer countries. Therefore national estimates of poverty lines are not directly comparable across countries.

Living wage defines the income needed to support one adult, and a family with two children respectively. The living wage is estimated for a full-time worker, i.e. the calculation adjusts for the gender differences in the employment rates, so that the total household income earned by two parents should always amount to a living wage, i.e. be sufficient to cover the basic family expenses.

A Statutory Minimum Wage is a Minimum Wage level ordained by government regulations, with or without the consent of social partners. In some countries there is only one Minimum Wage which applies to all workers. But in many other countries Minimum Wages show a lot of variety: i.e., they are set differently for various categories of workers defined by occupation, industry, age or geographic region. The nationally established Minimum Wages enshrined in laws and regulations aim to ensure that working people will not fall below the national poverty line. In countries with multiple Minimum Wages the lowest value is shown.

Reported monthly earnings of workers in low-, medium-, and high-skilled occupations are obtained from the WageIndicator voluntary web surveys collected in 2014 and 2015. The definition of groups follows the 1-digit ISCO-classification of occupations where ISCO 1-2 are clustered into high-skilled, ISCO 3-8 into medium-skilled and ISCO 9 into low-skilled groups. The presented values represent the 25th percentile of the wage distribution in a given skill-group.

Results of Two Years Cost of Living Survey

Living wages are the financial expression of working people's desire to be able to lead at least decent lives with their earnings. In 2014 WageIndicator started to collect the actual prices of items necessary to calculate the cost of living within the Cost of Living Survey. The WageIndicator living wage estimates the monthly expenses necessary to cover the cost of food, housing and transportation, as well as expenses for other basic necessities such as education and health, included in a 10% margin for unexpected expenses. The living wage is currently calculated for most countries where Wage Indicator has operations. Because food and housing costs may differ between regions within a country WageIndicator provides for regionally differentiated living wages within countries. The resulting living wages-ranges with their minimum and maximum values are presented for an individual and two different model families. WageIndicator keeps all estimates of living wages up-to-date and figures are published at www.livingwageindicator.org.