Transcript What is living wage

Unlivable Wages? An analysis of
minimum wages in Eastern and Western
Europe from a Living Wage Perspective
Brian Fabo
C e n t r a l E u r o p e a n U n i v e r s i t y, B u d a p e s t
Centre for European Policy Studies,
Brussels
Sharon S. Belli
Labor Market Effects of
MW
• (possible) Job loss/wage increase for those who stay
employed
• Two ways of looking at it:
Not just minimum wages all wages are
low!
• Point made by Pogatsa in Visegrad review – even the
middle class in CEE suffers from low wages
• We do not argue that MWs in CEE are unfair, but rather
unlivable.
Why do we care about living
Wage?
• The Universal Declaration of Human Rights
“Everyone has the right to a standard of living adequate for the
health and well-being of himself and of his family, including food,
clothing, housing and medical care and necessary social services,
and the right to security in the event of unemployment, sickness,
disability, widowhood, old age or other lack of livelihood in
circumstances beyond his control.”
• Guarantee even the worst – off a dignified life in exchange of
their work
Moral Justification :
Justice as fairness
(John Rawls)
• Each human being has the same claim to equal basic liberties,
which are compatible with liberties for all
• Social and economic inequalities have to satisfy the conditions
of fair opportunity and difference principle.
• Difference Principle
– social institutions are arranged to reduce inequalities of
wealth and income work to the advantages to the worst- off
– financial inequalities are justified just if the outcome is the
advantage of the worst – off.
What is living wage
?
Definition:
Living as aimed to reflect the local cost of living and the
real cost of life, designed to re-balance the moral economy,
setting an ethical minimum that reflects and supports the
real costs of living (Wills and Linneker, 2013)
Living wage and minimum wage have been comparable
until minimum wages start to lose buying power over time
and falling under the rational definition of poverty (Schenk,
2011)
Economic
Justification
• Why workers should earn a living wage adequate to the
standard of their community? ( Stabile, 2009)
– Sustainability
– Capability of the labour force
– Externality of not ensuring sustainability and
capability
(Stabile, 2009)
– Living wage intervening in the pre- distribution of
wealth reduce the power and engagement of trade
unions or wage- setting mechanism established by
many governments.
(Will and Linneker, 2013)
Long – Running
Movements and
Settlement
• Living Wage Foundation (UK)
• Harvard Living Wage Campaign (US)
• Asia Floor Wage (Asia)
Complexity of the settlement of a living wage
• Form of payment ( by hour, by week, by month)
• Implementation and Enforcement
• Need for strong battle
Minimum wages
Comparison
• 2 clusters – about € 500 in CEE, € 1500 in the West.
• Clear relation with GDP, CEE minimum wages more
generous in relation to average wage than in the West
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
0
200
400
600
800
GDP
1000
1200
Average Wages
1400
1600
1800
2000
Subsistence minimum comparison
• Set by government typically according to the cost of a
basked of goods needed to maintain basic living
standard
• Less clustered but basic dynamic the same
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
0
200
400
600
800
GDP
1000
1200
Average Wages
1400
1600
1800
2000
However, the governments themselves set a
different LW for foreigners
• Case of Slovakia, a foreigner needs according to the law
per day:
– € 30 For Accommodation
– €4
For Breakfast
– € 7.5 For Lunch
– € 7.5 For Dinner
– €7
Spending Money.
• Altogether € 1680 per month. SM = € 200, MW = € 405
• Government claims a Slovak citizen can sustain herself
for 8 times less money compared to a foreigner!!!
Indeed, such dual SMs are common
across CEE
160%
140%
120%
100%
80%
60%
40%
20%
0%
Living Wage
Minimum Wage
WageIndicator International Living
Wage
• Calculated based on an online survey of cost in line with
Anker (2005)
• Consisting of:
– Food
• 2100 calories per day, local consumption patterns used
– Housing –
• 1 room apartment outside of the city centre
– Transport –
• A monthly pass to get around in the city or to the nearest city if
respondent lives in the countryside
– 10 % additional expenses
• Calculated as a range 25th percentile - median
National rates vs. WI
rate
WI Living Wage as a % Subsistence
minimum
WI Living Wage as a % of minimum Wage
Belgium
140-180
60-70
Bulgaria
220-250
150-180
Czechia
570-690
120-150
France
80-110
50-70
Greece
110-130
70-80
Hungary
140-180
110-140
Netherlands
70-90
50-60
Poland
390-460
110-120
Portugal
100-140
80-100
Romania
460-620
100-130
Slovakia
230-270
110-130
Spain
90-110
90-110
United Kingdom
80-100
50-60
Implications
• In Visegrad countries, subsistence minimum is not sufficient to
ensure dignified standard of life
• Even Minimum Wages in V4 are 10-50 % below living wage.
• Including taxation in the equation, MWs are likely to decrease
further.
– e.g. Hungary taxes low incomes heavily
• Substantially, our results give us reason to believe that
increase of MWs in the region is desirable.
• Because MW < LW, additional money will certainly go into
local consumption, increasing effective demand.
THANK YOU!