New ILO standard methodology for calculating a living wage

About the methodology 

• On 13 March 2024, the International Labour Organization’s (ILO) Governing Body agreed on principles to calculate a living wage. As a next step, the ILO will update its existing methodology for calculating the needs of workers and their families to align with these principles. The revised methodology is expected in late 2024 and will become the standardised international methodology for calculating a living wage.
• The ILO principles to calculate a living wage were developed in a Meeting of Experts in February 2024, which included representatives from governments, business and trade associations, trade unions and the ILO. Representatives from the International Organisation of Employers (IOE), the International Trade Union Confederation (ITUC), IndustriALL Global Union, H&M, Walmart, and the Bangladesh Employers’ Federation were involved, amongst others.
• The new ILO principles state that living wage calculations should

• Estimate the needs of workers and their families through evidence-based methodologies
• Consult with representative employers’ and workers’ organisations on living wage estimates and involve social partners throughout their development, with a view to ensuring national and/or local ownership
• Be transparent and include details with regard to data sources and methods of processing that are open to scrutiny, comprehensive and replicable
• Have robust data in terms of representativeness and transparent data collection methods
• Allow for the estimates, data and methodologies to be publicly available in a timely manner
• Specify whether estimates are gross or net, and whether items such as social security contributions are included or not
• Be adjusted regularly to consider changes in the cost of living and patterns of consumption
• Include quality control such as technical reviews, validation, as well as a periodic review for continuous improvements
• Promote gender equality and non-discrimination
• Consider the regional or local context and socio-economic and cultural realities.

Next steps

• The ILO is now in the process of developing the technical methodology for calculating a living wage based on the above principles. 
• Samsung and Apple will pilot the methodology in summer 2024 and we expect the final methodology to be published at the end of 2024.

 Implications

• This is a significant development. It is the first time that the ILO has formally set principles to calculate a living wage. 
• The ILO’s living wage methodology will be a standard, meaning that private benchmarks will need to align their methodologies with the ILO in order to remain relevant. 
• Regulators are likely to require companies to use the ILO’s living wage methodology when assessing their living wage risks, setting targets and monitoring progress under the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD).
• Historically, the ILO has focused on minimum wages rather than living wages. In 2022, the International Labour Conference set a resolution that gave the ILO a mandate to start working on living wages. We expect the ILO’s work to continue to grow on this topic.

What is a living wage? 

• The ILO defines a living wage as “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, [and] to be achieved through the wage-setting process in line with ILO principles on wage setting”.