Living wage vs minimum wage: Mind the gap

The notion of minimum wage has been around a long time, but it does not necessarily coincide with the notion of a ‘living wage’. As I have argued elsewhere, even in rich countries the mandated minimum wage does not provide workers and their families enough to meet their basic material needs. Not surprisingly, this has bred the phenomenon of ‘working poverty’, that is, the incidence of poverty that prevails among those who are still employed. For example, in the United States, the incidence of working poverty is 6.6 cent, while in Canada it is 5.5 per cent. In general, between to 5 to 7 per cent of the employed population are afflicted by working poverty in rich countries, requiring the state to intervene through various forms of means-tested financial assistance to such vulnerable groups. Working poverty is, of course, significantly higher in the developing world. Even in such a reasonably prosperous and middle income country like Malaysia, the incidence of working poverty is nearly 37 per cent.  

It thus appears that the time-honoured tradition of using minimum wages as a way of warding off working poverty has not been particularly effective. One could argue that this is a case of improving compliance and enforcement rather than a radical adjustment of the prevailing minimum wage to bring it up to to the standard of a ‘living wage’. Yet, systematic compilation of the available evidence by such bodies as the Living Wage Foundation in the UK has shown that the gap between a national minimum wage and estimates of a national living wage has actually grown between 2011 and 2015.

Such evidence lies behind the impetus of a ‘living wage movement’ in rich countries. Civic activism of this kind has also grown in the developing world. A good example is the ‘Asia Floor Wage Alliance’ (AFWA) which describes itself as

….an international alliance of trade unions and labour rights activist who are working together to demand garment workers are paid a living wage. It began in 2005 when trade unions and labour rights activists from across Asia came together to agree a strategy for improving the lives of garment workers.

As part of its objective of ‘improving the lives of garment workers’, AFWA provides (PPP-based) estimates of living wages in the garment industry across different parts of Asia. Based on such evidence, the prevailing minimum wage in some Asian countries is pitifully low varying between 19 per cent  (Bangladesh and Sri Lanka) and 54 per cent of the estimated living wage (Malaysia).  Clearly, if these estimates are to be believed, the minimum wage, even if adequately enforced, will not be able to deal with the scourge of working poverty in Asia.




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