Introduction The concept of a Living Wage (LW) has been around for many centuries. Adam Smith wrote about it in the 18th century and it is referred to in the Constitution of the International Labour Organization (ILO) of 1919. The United Nations Universal Declaration of Human Rights (1948), the Council of Europe s European Social Charter (1961) and the the UN International Covenant on Economic and Social Cultural Rights (1966)all recognise the need for workers to receive a (decent) living wage. At present due to declining wage shares worldwide, widening wage and income inequalities and interest in Corporate Social Responsibility, attention for the topic of a (decent) Living Wage is growing. Yet unfortunately, as Richard Anker states in his report on the topic, at present there is neither a generally accepted definition of what a living wage is, nor is there a generally agreed methodology on how to measure it. 1 It is important to note that although this paper focuses on Living Wage, relevant to all hired labour, UTZ Certified also underlines the importance of a Living Income. UTZ Certified works with hundreds of thousands of smallholders across the globe. These farmers usually do not have any hired labour and therefore to them Living Wage is less relevant. The concept of a Living Income is however vitally important. It is however also conceptually different to Living Wage in the sense that whereas wage requirements can be (and are, as you will read in this paper) part of a Code of Conduct, Living Income is an outcome of UTZ Certification through increased efficiency, productivity, quality of produce and increasing market access. Since for these two concepts the interventions to realise impact is so different, we choose to focus on Living Wage here. What is a Living Wage? Since 2005 the ILO described Living Wage as the level of wages sufficient to meet the basic living needs of an average-sized family in a particular economy. 2 The École Polytechnique Fédérale de Lausanne, which did an interesting study on the topic, writes While there is no universal definition of a living wage, the majority of social initiatives with living wage clauses converge around the concept that a living wage should provide for basic needs, usually conceived of as the ability to obtain adequate food, clean water, shelter, clothes, education, healthcare, transport and energy. 3 It is important to add that the required amount of income should be obtainable within normal working hours. The ILO s intention when introducing a Minimum Wage was for it to function as a Living Wage: enough to cover basic living needs. Today however, in many countries, if a legal minimum wage exists, it often does not cover living wage requirements and in some cases is even below the World Bank defined extreme poverty line of 1,25 USD (PPP) a day. This means that legal minimum wages do not protect these workers sufficiently. This is obviously a problem and not in line with the mission of UTZ: UTZ Certified s mission is to create a world where sustainable farming is the norm. Sustainable farming helps farmers, workers and their families to fulfil their ambitions and contributes to safeguarding the earth s natural resources, now and in the future. A world where sustainable farming is the norm, is a world where farmers implement good agricultural practices and manage their farms 1 Richard Anker, Estimating a living wage: A methodological review, ILO 2011, p. 7. 2 ILO documents referring to minimum/living wage include the ILO Constitution and its preamble, the 2006 ILO Declaration on Principles concerning Multinational Enterprises and Social Policy, the 2008 ILO Declaration on Social Justice for a Fair Globalization. See also: Anker, R., Policy Integration Department Statistical Development and Analysis Group International Labour Office, Geneva, working paper, 2005. 3 Roundtable on Sustainable Biofuels guidance document Living Wages: Best Practices and Recommendations from Social Initiatives, written by École Polytechnique Fédérale de Lausanne (EPFL), 2009, p.5. UTZ Certified 2013 1
profitably with respect for people and planet, industry invests in and rewards sustainable production, and consumers can enjoy and trust the products they buy. UTZ therefore aims to do more for these farmers in terms of a decent wage. What is UTZ currently doing with regard to wage? Before discussing what improvements UTZ envisages to better ensure a decent wage, it is important to note what we have done thus far. Tracing back to our first UTZ Code of Conduct, the following ILO conventions (including all ILO Core conventions) are referred to in the Codes of Conduct: ILO Convention No. 26 for determining minimum wages (Revised in 1970: Convention No. 131) Freedom of association and the effective recognition of the right to collective bargaining (87, 98) Elimination of all forms of forced or compulsory labour (29, 105) Effective abolition of child labour (138, 182) Elimination of discrimination in respect of employment and occupation (100, 111) ILO convention 95: Protection of Wages Convention (1949) ILO Convention 1: Hours of Work (1919) ILO Convention 155: Occupational Safety and Health Convention (1981) This means that no child labour, unsafe working conditions, excessive working hours, forced labour or discrimination are tolerated. It also means our Code of Conduct requires the payment of at least the minimum wage in line with legal requirements or the prevailing sector wage (whichever one is higher) and that workers are free to join labour unions and collectively bargain for improved wages. Furthermore, basic needs that can be assessed during the audit are also included as control points in our Codes of Conduct: Safe housing and access to education, healthcare, clean water, energy and transport. This means that regardless of the wage level, workers at least have access to these basic needs. The main problem UTZ Certified faces is that although a minimum wage (as defined by the ILO) was hoped to provide for basic living needs of workers and their families, the minimum wage in some of our producing countries is not always sufficient to meet the basic needs of farm workers. In order to strengthen wages in UTZ Codes, UTZ kicked off a partial code revision 4 for the first time in the history of the program in 2010 to introduce the concept of Living Wage in the UTZ Codes. UTZ Certified extensively consulted internal as well as external stakeholders about the issue of Living Wage and the feasibility and practicality of including it in the Code of Conduct and audit process. After the stakeholder consultation, it became clear that Living Wage is considered an important topic by most of our stakeholders but that more discussion, research and consultation is necessary to ensure that a living wage can be effectively defined, assessed and implemented. Also, because many other organizations appeared to be struggling with the same topic, it showed to be important to collaborate, share experiences and align our approach with other initiatives. Since then UTZ Certified has been working hard to find a solution and conducted consultations with an even larger group of stakeholders and collect more feedback on the topic. UTZ has strengthened trade union representation at the very top of its organization by having a trade union representative 4 At least every 5 years UTZ does a full code revision in which all criteria are discussed through internal and external consultation rounds. However, UTZ can initiate a partial code revision on topics of particular importance and/or urgency, which is what it did in 2010 for Living Wage. UTZ Certified 2013 2
in its Supervisory Board. UTZ has participated in projects and discussions 5 and sought collaboration with other organizations working on the topic, such as Ethical Tea Partnership, ISEAL, Oxfam Novib Fairtrade and Rainforest Alliance. By learning from best practices in different sectors, we are assessing how our program most effectively can contribute to improving wages to sustainable levels. What are the challenges with Living Wage? Several things make the concept of Living Wage hard to integrate as a requirement for certification. First, in order to be effectively assessed, there must be a practical and internationally agreed way to calculate and audit it in different contexts. Secondly, defining and improving wage levels involves many different parties (workers, producers, buyers, trade unions, governments etc.). Most importantly, there are concerns that the role of trade unions will be undermined if wage levels are externally determined by labels/certification organizations. Also, consequences on the (local) economy need to be taken into account, such as the consequences for the demand for labour (unemployment rates) and the economic viability and competitiveness of producers. Lastly, it is important to realize that a living wage is not only about wage levels. Not only the quantity, but also the quality (how wages are set, how wages are paid 6 ) is important. It is impossible to see wage issues separately from other labour rights (such as working hours, collective bargaining) and the value of other (in kind) benefits that the employer provides must also be taken in to account. 7 Calculating a Living Wage level: What is considered an acceptable basic quality of life is time- and place-specific. It differs across development levels and improves over time as a country develops. Inflation rate, rural versus urban areas, infrastructure, services provided by the government, labour availability etc. all have influence on the amount of income needed to cover basic living needs. It is also important to point out that assumptions for household size needing to be supported and the number of persons in households expected to work are, by their nature, somewhat subjective. 8 Also, it has shown to be very difficult to put a value to in kind benefits that are provided by the employer. Through several meetings and conversations held with front runners on the topic of Living Wage, we see a trend to move away from the actual calculation of a Living Wage level. Other initiatives in other sectors move such as SAI (SA8000) are moving beyond LW calculation and more towards a process of improving wages. They have concluded that there is no silver bullet calculation and a Pass/Fail system is too often manipulated in practice. 9 As Dan Rees, Director of the Ethical Trading Initiative puts it Don t get bogged down in living wage calculations. Don t let the challenge of how to 5 Amongst others UTZ Certified participates in the Tea Wages Project with Ethical Tea Partnership, Oxfam Novib, Rainforest Alliance, Fairtrade etc. international discussions on Living Wage (Fair Wage Network etc.) the sounding board of a Living Wage project by the Dutch ministry of Foreign Affairs (facilitated by Berenschot). This project is now linked to an international round table. ISEAL project to assess impact on poverty alleviation (incl. monitoring impact on wages and income) 6 For instance, wages are sometimes paid in kind in terms of food, housing etc., or partly paid only after a certain period of time, offering a saving scheme for workers. 7 Fair Wage Network. See: http://www.fair-wage.com 8 Richard Anker, Estimating a living wage: A methodological review, ILO 2011, p. 5. 9 Social Accountability International, On Living Wage: Approach of Social Accountability International, June 23 2011, p. 2. UTZ Certified 2013 3
calculate a living wage in your sourcing countries distract you from the task of making progress in increasing wages. 10 Fairtrade International also uses a progress requirement to improve wages towards a Living Wage rather than a set wage level in their Codes of Conduct. As you will read below, this is the direction in which UTZ is now moving too. Credible and effective auditing of Living Wage: Two concerns are often raised when it comes to auditing living wage: the risk of subjectivity (related to difficulty to calculate/quantify the value of basic needs and in kind benefits) and the risk that auditing costs will increase. It is important that auditing costs (and thereby the costs of certification) do not rise to the extent that certification is no longer an option for farmers. Effects on local economy: In origin countries there are worries about the local effect on demand for labour and cost of living due to the introduction of a Living Wage. Furthermore, it is feared that if labour costs are too high, producers can become uncompetitive. Although it is undeniable that in some countries and areas wage levels need to increase, they should do so steadily to avoid farmers going out of business which would result in increased unemployment. Also, it needs to be taken into account that producers are not always able to sell 100% of their production as certified (e.g. because they sell to different buyers demanding different qualities), making it difficult to compensate increased costs by a higher price/premium. Other parties involved: Improving wages is a shared responsibility in the supply chain and should involve both buyers and suppliers. Although research has shown that higher prices do not automatically lead to higher wages, it is important to look at the whole supply chain and conduct case studies to understand the effects of wages on the supply chain and price levels. It is vital that the role and freedom of labour unions to negotiate on wage levels is respected. As the ILO underlines, collective bargaining is the best way to establish the basic needs of workers, rather than an externally defined list. Other parties that are important in the process of improving wages are local authorities/governments and supply chain actors. Both should be supportive and UTZ will continue to talk to these actors to convince them of the importance of a living wage and the role of trade unions. Strengthening UTZ Certified s commitment to Living Wage Based on the international discussions and best practice, an in the absence of broad agreement on how to calculate Living Wage for starkly contrasting areas of the (developing) world, we propose the inclusion of two important improvements to our Codes of Conduct on the topic of wage: 1. A progress requirement to improve wages towards a Living Wage, and 2. A safety net wage level expected as a Year 4 requirement in our Codes of Conduct. From the first year of certification the criteria will remain that at least the minimum wage in line with legal requirements or the prevailing sector wage (whichever one is higher) will be paid. In addition we propose adding a progress requirement which strengthens the position of trade unions and creates the conditions (raising awareness and stimulating dialogue) to negotiate for improved labour conditions towards a Living Wage. The auditor should make an inventory of how wages are set, in addition to monitoring the actual/set levels. Therefore we will train auditors on how wages 10 Richard Anker, Estimating a living wage: A methodological review, ILO 2011, p. 9. UTZ Certified 2013 4
should be checked and reported. This inventory and audit should create pressure conducive to wage increases. The extra control point in our Codes of Conduct in Year 4 would create a safety net for workers in those countries where national minimum wage levels are below subsistence levels and trade unions are not able to negotiate a stronger position for workers wages. The Control Point could for instance require the payment of at least a safety net wage level, the minimum wage in line with legal requirements or the prevailing sector wage, whichever one is highest. What amount this safety net is, or the best way to go about this, will be further discussed in the near future with fellow labels as well as ISEAL. An internationally agreed upon method which will be taken up broadly in the sector is required to prevent UTZ Certified farmers from becoming uncompetitive and going out of business. It is therefore crucial that buy-in from all relevant stakeholders, including the leading standards and supply chain actors is secured before implementation. Together these two measures should create an upward trend in wage levels from the start of certification as well as, in certain situations, a proposed additional safety net for workers from year 4 onwards. This fits perfectly within the continuous improvement system that UTZ brings about. UTZ believes the emphasis should be facilitating a conducive climate where wages increases to decent levels (not punishing stakeholders for lack of compliance). The 4 year period should be seen in this constructive light. In the implementation of these two new elements in our Codes of Conduct, the Monitoring & Evaluation department will play an important monitoring role in collecting information about wage levels in different countries, sectors and local contexts (e.g. lowest and highest wage paid, mode/mean, including gender specific). This information can then be collated with local, national and international benchmarks (e.g. wage ladder tool), increasing our own understanding, raising awareness in the supply chain and strengthening the negotiation position of trade unions The full Code revision cycle of all our Codes of Conduct, a multi stakeholder process with several consultation rounds, was kicked off in August 2012. The abovementioned approach will be discussed extensively during this process and hopefully adopted. The first draft of the new Codes will be discussed by the UTZ Standards Committee in May 2013 and the final Codes will be ready by April 2014. Conclusion and recommendation We are in the process of revising our Codes of Conduct and pending stakeholder approval expect to include aspects to strengthen a Living Wage in our Codes by the April 2014. UTZ Certified aims to strengthen its commitment to creating an environment where workers earn a decent/living wages and are able to provide their families with basic needs. Since a single definition or methodology to calculate a Living Wage does not exist UTZ Certified is planning to introduce a progress requirement in its standards to continuously improve wages and at provide a safety net within 4 years. This proposal is based on the premise that the bargaining position of labourers can be bolstered by monitoring and discussing wage developments. It can serve as a tool for trade unions to strengthen their call for wage increases. A four year maximum limit to reach a safety net wage level should strengthen this dynamic of growth towards a Living Wage and function as an additional security in countries with very low national minimum wages and prevailing sector wages. UTZ Certified 2013 5