Section I: The Will to Define a Living Wage

Section II: Setting the Context for a Living Wage

Section III: Characteristics if a Methodology Needed To Understand Wages and Their Effects

Section IV: The Purpose of a Purchasing Power Index Study

Trans-Temporal Measurement of Purchasing Power

Trans-Cultural Measurement of Purchasing Power

Trans-National Measurement of Purchasing Power

Section V: The Question of Nutrition

Section VI: The Question of Housing

Section II: The Advantages of the Purchasing Power Index

Appendix A: Definitions of Wage Levels

Section I: The Will to Define a Living Wage

The ability to define a sustainable living wage depends upon the will of the persons responsible for the research and definition. If we really want to know what is necessary for workers anywhere in the world to live a quality life, we have at our disposal the means to do so. This ability to define requires the following:

• The recognition that all human beings have the same basic needs anywhere in thew world. What changes from culture to culture is the expression or form of those needs.

• The recognition that no one gets used to being poor, to not having, to doing without.

• The recognition that no one gets used to not being able to provide for their children in a manner that will lead to growth and development according to their abilities.

• The recognition that is a historical chance that one group of persons, one community lives in a resource-available rich country with access to possibility while another struggles to survive in a country with less availability.

• The recognition that historically areas which are today recognized as "developing countries" are already developed culturally and are struggling to survive in a global economic system which gives increasing power to the economically endowed and penalizes the struggle of those countries and communities struggling for their fair share.

• The recognition that richer countries and communities have achieved that richness often as the expense of economically disenfranchised countries and communities.

In a previous paper, we have discussed the issue of wages using a systemic analysis construct: wages as legal, ethical, moral or just. Efforts to define a sustainable living wage, while taking into consideration the often-used levels of legal and ethical, must raise the bar to start with a moral wage since that is the wage level that allows for human beings to live with dignity. It is no longer tolerable, if it ever was, to define a wage as a "living wage" simply because the worker receiving that wage is able to stay alive. For this reason, CREA uses the term "sustainable living wage" to indicate a:

Wage level meets basic needs including food, clothing, housing, energy, transportation, healthcare, and education.

Ability to participate in culturally required activities (including births and related celebrations, weddings, funerals and related activities).

Also allows for the setting aside of small amounts of money (savings) to allow for planning for the future purchase of items and meeting of needs.

(See Appendix 1 for statements of additional wage levels)

Section II: Setting the Context for Defining a Living Wage

Analysis of wages is misleading if wages are not seen within the context of prices at any particular time and in any particular place. For example, if wages are increased at the same time prices increase, then the effect of wage increases is often non-existent.

In a similar fashion, when a person travels to another region or country, the experience of items purchased as being "cheaper" for the traveler happens only because the traveler's wages are earned in another location or country. For persons living in any particular place, things are cheaper only if wages remain the same and prices go down, or if wages increase and prices remain the same.

Similarly, if an exchange rate changes, persons using the currency that has increased in value will experience the items being purchased in another country as being "cheaper". The person earning the lesser-valued currency experiences the same items as more expensive

Corporations use a tool similar to the Consumer Price Index when they are preparing to transfer a corporate executive from country to country or from one region within a country to another region. Because the cost of living is different in different regions, research firms are engaged which use a tool similar to a market basket survey. However, they do not usually use such a comparison tool when plants are opened or closed in different regions of the United States. Nor do they use this type of tool as a means of determining an adequate age for assembly line workers in another country.

Section III: Characteristics Of A Methodology Needed To Understand Wages And Their Effects

The existence of the globalized economy places demands on any methodology used to define a living wage anywhere in the world. Any methodological framework used to inform both the discussion of wages and the actual wages for workers needs to have several components and meet certain criteria. For information regarding wages to be helpful and useful on an on-going basis, the following are required:

 Section IV: The purposes of a Purchasing Power Index (PPI) study

The purposes of a Purchasing Power Index (PPI) study are as follows:

1. To provide an objective measure of a sustainable living wage standard specific to a country and region within a country.
2. To provide a means of assessing affordability of food, clothing, housing, transportation, and other items required for an adequate living standard. The key is affordability rather than the specific choices individual persons make.
3. To quantify the purchasing power which results from the wage scale(s) presently in use in each country where apparel products are manufactured.
4. To establish a sustainable living wage level for workers within a country and within a region of a specific country.
5. To establish a system of measuring the effects of inflation and other economic changes in each and any country on the purchasing power of the workers at any manufacturing facility in that specific country.
6. To quantify the changes in purchasing power resulting from the intersection of any wage changes, price changes and overall inflation as such changes occur.

The Purchasing Power Index provides data regarding the ability of workers anywhere in the world to meet their own needs and those of their families.

The unit of measurement is the minPP (the number of minutes of work required to purchase an item at a specific wage level.) Any worker, working a 40-hour workweek, has 2400 minutes of purchasing power (minPP) to spend each week. (40 hours x 60 minutes/hour = 2400 minPP) Likewise, a worker working 50 hours per workweek would earn 3000 minPP (50 hours x 60 minutes/hour).

Affordability is based on the standard number of work hours that a worker is required to work at his/her particular job, recognizing that the standard number of work hours varies from country to country. Overtime is calculated as extra work and does not enter into calculations of standard affordability although the existence and possibility of overtime provides the means for workers to better their standard of living. In defining a living wage standard for a country, overtime should not be necessary to achieve that standard.

The PPI methodology accurately measures the intersection of wages, prices and inflation while providing easily understood data that allows for comparison in three dimensions:

Trans-Temporal Measure of Purchasing Power:

Purchasing power can be compared over time for any group of workers or for workers in specific regions;

Example: Average minutes of Purchasing Power (minPP), at the legal minimum wage level, required to buy 1 kilo of rice (2.2 lb) in Haiti

(Source: In Whose Interest , CREA Inc., Hartford, CT,1996)

Post NAFTA, POST Mexican Economic Crisis

Trans-Cultural Measurement of Purchasing Power:

Purchasing power can be compared from one region to another within a given state, region or country;

Example: 1998 MetroHartford, Connecticut Regional PPI

Average Rent – 2 bedroom apartment (pro-rated to cost per week at minimum wage)

In this comparison we see that Hartford, although one of the top ten poorest cities of its size in the US, has an average housing cost of more than two-thirds of the wages of a person working at minimum wage. In comparison, West Hartford, with a population with much higher economic resources, has as an average apartment rent lower than Hartford, its economically disadvantaged neighbor.

Example: Indonesia PPI, 1996, 1998-1999

In 1998, a PPI study for 4 areas of Indonesia was begun. The data for the first 3 months of the study, Q4 1998, allows us to compare the cost of bananas and local rice for each of the areas. It is obvious from the data that costs are not the same in the 4 areas. The average cost for the 4 areas combined was also calculated. 

In the 4^th Quarter of 1998, 1 kilo of rice and 1 kilo of bananas were priced in minPP as follows:

The same pricing was done for Q1 1999, again showing a range of prices for the two commodities. Again the average cost for the four areas combined was calculated.

In the 1^st Quarter of 1999, the same items were as follows:

The Q1 data indicates that the prices for these two commodities are lower in the areas where pricing was done. This certainly would seem to be good news. However when the data for these two quarters are contrasted with data from 1996 when a baseline PPI study was begun, we get an indication of the drastic change in the purchasing power ability of the average worker.

Data for a baseline 1996 Indonesia PPI study was collected from 7 areas where assembly workers live. Averaging the prices from the seven regions together, the average cost in minPP for the same two commonly used food items was as follows:

The gift of the PPI is that by calculating the cost in minPP according to the minimum wage at each time of pricing, the real purchasing power of workers is made evident while taking into consideration a) the change in prices due to the economic crisis, on-going inflation, etc and b) the increase in the minimum wage. While the comparison of the Q4 1998 data and the Q4 1999 data seem to indicate that the costs of these commodities were decreasing, it is only when they were compared with the 1996 data that the real effects of the Indonesia economic crisis on the lives of workers is indicated.

The Indonesia data demonstrates that the PPI methodology can be used both trans-temporally and trans-culturally at the same time.

Trans-National Measurement of Purchasing Power: Purchasing power can be compared for different groups or workers doing the same work in different states or countries.

Example: Cost of 1 kilo of rice based on the legal minimum wage in 1996

Example: The comparison of purchasing power of workers working for General Motors in the United States and in the maquiladora assembly plants in Mexico

The first study using the purchasing power index methodology was a 1994 comparison of the buying power of maquiladora workers in Mexico and United Auto Worker (UAW) workers in General Motors plants in the United States. In this study, the work being done by the workers was the same. Jobs that had previously been filled by UAW workers in GM plants were now being done in the maquiladora plants in northern Mexico.

Prices of consumable commodities, collected within the same time frame across the United States and on both sides of the U.S.- Mexican border, were converted to minutes of work required for purchasing basic items. Using the starting wage level for UAW workers at GM in the US and the average take home wage of GM workers in the maquiladoras the following data was assembled:

What becomes immediately obvious is the loss of purchasing power when the jobs are transferred. What the data exposes is the often-repeated assumption that because items in Mexico are cheaper for someone earning and paying US dollars, that life is cheap in Mexico. The expensiveness of food commodities for Mexicans earning Mexican pesos is demonstrated.

The extreme loss of purchasing power available to workers when the jobs are transferred from the US to Mexico highlights where the profits of a company are also generated. While it is seems to be understandable that a company would move jobs to where labor is cheaper, the loss of purchasing power (of approximately 90%) means that the company is generating profits not only from the cheap labor but also from the ability to keep workers in a state of poverty.

Two major concerns became evident as a result of the maquiladora study:

(1) Maquiladora workers worked a 40-50 hour work week and were still not able to meet their own basic needs and the needs of their families.

How can such a wage scale be deemed appropriate? How can adequate purchasing power be ensured when economic development occurs?

(2) The inability of workers to earn adequate purchasing power because of low wages and unaffordable prices raises serious questions regarding their ability to develop and participate in a sustainable community.

What are the effects of the purchasing power loss in terms of the "ripple effect" which purchasing power has on the ability of a community to develop and support small businesses?

Section V: The Question of Nutrition

The question of a living wage has to include the differentiating between a wage that provides for food that is calculated in calories and food that provides adequate nutrition. The following data from the 1996 PPI study in Haiti clearly demonstrates the clear difference between the lower cost of carbohydrate calories and the relatively higher cost protein calories.

Example: Prices of carbohydrate foods (such as rice) vs. protein foods (such as beans, herring, and milk) in Croix de Bouquet:

The question of nutrition, and the affordability of protein, fruits and vegetables, potable water, etc. as well as carbohydrates, clearly demonstrates the increased need for purchasing power earned by workers as a result of their work week. Workers who are supporting families, especially children and the elderly, have an increased need for affordable protein, fruits and vegetables.

Research on child development clearly demonstrates the connection between the ability of a young child’s brain to develop to its potential and the need for protein, vitamins, fats, etc. Calculations of a moral wage, a just wage, a living wage needs to take this into account.

For the purposes of this section, housing will include shelter (rent), heat, electricity or other form of light, cooking fuel (gas, coal, electricity, wood, etc.), and potable water.

Example: Matamoros, Mexico, 1998

In 1998, a PPI study was conducted for the Matamoros, Mexico area. Housing and related costs in minPP are presented for workers starting at 6 pesos per hour and continuing at one-peso increments to 14 pesos per hour. The high minPP demand for housing and related costs is clearly demonstrated.

As soon as the price of rent is converted into minPP units, the domination by housing costs of available purchasing power provided by the base wage levels of the regular workweek is clearly demonstrated. When the other basic living costs of water, cooking fuel, light and transportation are added to the total, the amounts of purchasing power remaining are not sufficient to cover the costs of nutritional food, clothing and health care related articles.

Sample: Hartford, Connecticut, 1998

The 1998 MetroHartford, CT PPI study provided the following information. Starting with the standard 40-hour workweek:

This means that 332 minPP remain each week to pay for food, transportation, medical costs, clothing, and other basic needs. With the cost of a gallon of milk averaging 33 minPP, the limitations of the minimum wage in the metroHartford area are demonstrated. (Note: In the complete study, all subsidies, such as Section 8 housing when available, were included in the analysis. The decrease in availability of Section 8 vouchers and the effects that this has on affordability of housing in Hartford is discussed in the full report.)

The PPI combines the effects of wages, prices and inflation into a clear and precise assessment of the purchasing power accruing to workers as the result of an ordinary workweek. In addition, the PPI provides a means to assess the effects of any added overtime, subsidies, bonuses, benefits, and other additions that a specific company may offer and/or provide.

Advantage 1:

The PPI methodology provides easily understood data. Anyone who has ever worked and saved for something understands the concept of "how long do I have to work to be able to afford something".

Advantage 2:

The PPI methodology is a transparent methodology as a whole process. In addition, each step in the methodology is transparent. Both the methodology and the results are easily understood.

Advantage 3:

The PPI methodology automatically factors in the effects of inflation as well as the effects of changes in wages and/or prices. It also allows for the inclusion of the benefit of wage additions such as subsidies, benefits, bonuses and any other additions to a worker’s income. When these additions supply the items noted in any of the different wage levels, the cost of those items can be deducted from the total required for a worker to meet that given wage level standard.

In calculating the benefit of any of these subsidies, etc., care must be given to not presume that the addition of a specific wage addition item takes the place of income needed to meet other needs. Employers, not employees, decide upon wage addition items. Certainly wage addition items add to the lifestyle of the workers and their families. However, the presence of the items may or may not supply life essentials for workers and their families.

Advantage 4:

The PPI methodology allows for specificity in each geographic "focus area" while providing data that establishes a basis of comparison between one geographic location and another. Because costs differ from area to area, the wages required to meet those costs will also differ. The PPI provides a clear methodology for comparison.

A comparison of the cost of self-sufficiency in rural, suburban and urban regions within a country is also possible. These different locations can be as varied as comparisons between inner-city and suburban locations within a state, between different cities in a country or between different countries, such as on different sides of a border.

The ability to compare purchasing power from one geographic area to another means that the PPI provides the data to track the effects of jobs being moved from one country to another. Chief among these effects is the purchasing power that may or may not be transferred from the old group of workers to a new group of workers in another country.

Advantage 5:

The PPI methodology allows for both specificity and comparison over time. Any future follow-up studies provide the data in the same form: minutes of purchasing power required (minPP). It is therefore relatively simple to see what progress has been made by workers in their struggle to meet basic needs.

The PPI methodology is based on affordability. It totally avoids the distracting discussions about whether or not persons make prudent use of their financial resources. It removes the whole question of judgement of values normally involved in decisions as to how one spends one’s money. The PPI states what is possible in terms of the purchasing power accruing as the result of a normal workweek. At different wage levels, what changes are the "prices in purchasing power minutes" or the cost in work minutes" according to the varied wage levels. Questions as to whether a person is spending money in a manner which another person might consider "frivolous" is no longer part of the discussion. The emphasis is on what is affordable, not what is chosen for purchase.

Advantage 6:

The PPI methodology allows for the items chosen for pricing to be culturally sensitive. By doing actual pricing, the PPI pricing lists can be inclusive of foods and other items particular to any group within any local population.

In addition, the PPI allows for the cost of the community or cultural norms of a worker’s life to which he/she is required to contribute. Another way of saying this is that wage levels need to be culturally honorable. For example, the contributions required of a person when there is a wedding, or a birth or a death in the community need to be financially possible.

Advantage 7:

Advantage 8:

The PPI changes the context of the expression "minimum wage". There are questions that then can be asked:

• Minimum in terms of what context?
• Is minimum wage the minimum amount that a person needs to survive?
• Is it the minimum established by the local governing power as the least amount that the employer is obliged to pay the employee?

Advantage 9:

The PPI methodology provides precise calculations accepted by corporations, non-governmental organizations (NGOs,) religious investors and other members of the socially responsible investing community The variety of groups that have commissioned the prior studies undertaken by CREA testify to its acceptance and relevance. The response of numerous public groups that have read public reports of the past studies has been overwhelmingly positive.

Appendix A: DEFINITIONS OF WAGE LEVELS

The following are the working definitions of wage levels that CREA uses to describe the purchasing power that workers are able to earn. Agreement on these definitions could be helpful to discussions about wages.

Level 1: Marginal Survival Wage

Wage level does not provide for adequate nutritional needs.

Starvation is prevented, but malnutrition, illnesses, and early deaths are the result.

Level 2: Basic Survival Wage

Wage level allows for meeting immediate survival needs including basic food, used clothing, minimal shelter, fuel for cooking.

Level 3: Short Range Planning Wage

Wage level meets basic survival needs.

Possibility of small amount of discretionary income allows for minimal planning beyond living from paycheck to paycheck.

Allows for occasional purchase of needed item(s) as small amounts can be set aside from meeting basic survival needs.

Level 4: Sustainable Living Wage

Wage level meets basic needs including food, clothing, housing, energy, transportation, healthcare, and education.

Ability to participate in culturally required activities (including births and related celebrations, weddings, funerals and related activities).

Also allows for the setting aside of small amounts of money (savings) to allow for planning for the future purchase of items and meeting of needs.

Level 5: Sustainable Community Wage

In addition to meeting basic needs and allowing worker to set aside money for

future purchases, allows for the availability of enough discretionary income to allow worker to support the development of small businesses in a local community, including the support of cultural and civic needs of the community.

Wage levels allow for long range planning and participation.