Fair wage Vs Living Wage

The living wage was introduced by the World Fair Trade Organization back in 2015.  Since then, all the Fair Trade Organizations have to comply to this specific rule. Having said that, let’s be clear on how to we define a « Living wage », how do we set it up and how is it affecting the craft’s price for the fair trade organization? Starting with definition always make things clearer

A fair price is one that has been negotiated through dialogue and transparent price setting, which includes: an analysis of production and trace costs, a fair wage and provides a fair profit.

A fair wage represents an equitable, negotiated share of the value chain of the product and presumes the payment of a least a living wage.

A living wage is the remuneration received for standard workings hours (without overtime), which is sufficient to meet the basic needs of an individual and his/her dependents, and allow for some savings and/or additional expenditure. Elements of a decent standard of living include food, water, housing, education, health care, transport, clothing and other essential needs, including provision for discretionary expenditure.

To sum up, living wage is different from: ● Minimum wage (political determination) ● Prevailing wage (market forces) ● Negotiated wage (power balance worker-employer)

To reach out a fair price, we need to define a fair wage and to define it, we need to define a Living wage…

As per the World Fair Trade Organization, the living wage has to represent 110% of the minimum wage.

Meaning that in Nepal, the minimum average salary being set at 9,700 NPR, it should be more than 10,670 NPR (Purnaa, 2016)

WFTO main office and regional office such as WFTO Asia had given advice on how to prepare the transition from paying a fair wage to a living wage. Among them, the fair trade organization are advised to:

  • Write a company policy that clearly states the aim to pay Living Wages.
  • Include Fair Trade terms (or human rights clauses) in the terms of trade with your suppliers and customers – and encourage your
    governments to do the same when they contract with suppliers or other governments.
  • Start talking about creating the solutions…
  • Partnering with others fair trade organization and discuss together rather than « going alone ».

A specific costing sheet has been created in order to calculate the new product price based on the calculated living wage being implemented. This approach method is more artisans producers/ management related, so that all the fair trade organization are able to apply it based on their own environment and the implications for business.

WFTO Living Wage Calculation Tool – Version 18-6-2015


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