From minimum wage to living wage

Taken together, the additional mechanism against inflation and the generous increase in the children’s allowance and in the in-work benefit are bringing those on low incomes closer to the concept of a living wage.

In recent years there has been a lot of discussion on the concept of the living wage. The latter is meant to ensure that a person working for 40 hours a week can afford the basics for a modest but decent life with no additional income. For instance, in the UK, the Living Wage Commission carries out regular research on how much it costs for families living in different cities to buy a standard set of goods and services.  

On the other hand, the minimum wage is set as a minimum rate of pay that is allowed in a country. This does not tend to relate directly to living costs, but rather negotiations between trade unions, the Government, and employers’ organisations.

In Malta, historically the minimum wage has been increased by the Cost of Living Allowance (COLA). The latter is computed on the basis of how much the cost of a basket of goods and services has increased over time. The percentage increase is then applied on the social wage, which is a rate set above the minimum wage as it also includes a number of social benefits present when the first COLA was awarded. Thus, to the extent that the initial level of the minimum wage set back in 1989 was enough to ensure a decent living, the COLA increases should have ensured that the minimum wage remained relevant. Since 1989, the minimum wage has been increased by an amount higher than the COLA: once in 2017 and, now, as from next year.

Data issued by the EU statistical office, Eurostat, shows that, within the EU, minimum wages when compared with median gross earnings range from 42% in Estonia to 66% in France. Malta was one of six EU member States where the minimum wage was below 50% of median gross earnings, at 43%. However with the increase announced for next year, it is likely that this ratio is now only slightly below 50%.

While the minimum wage sets the baseline for income in Malta, it is not people’s sole source of income. People also get a six-monthly bonus, a weekly allowance payable every six months, and an energy benefit. On top of that, a person on minimum wage will also receive a payment from the additional mechanism against inflation. Thus, someone on the minimum wage will next year get an income of €230.88 per week. This is about 53% of the basic median wage.

Those on the minimum wage who have children also qualify for the children’s allowance, the children’s allowance supplement, and the in-work benefit. Looking at a single parent with two children, the weekly pay and benefits amount to €362.76. This is an income that is 57% higher than a single person household on the minimum wage, and equivalent to 83% of the basic median wage.

Now the OECD suggests that every additional child in a household adds the equivalent of 30% of an adult’s consumption, which means that, to be equivalent, the income of a single parent household with two children needs to be 160% of that of a single-person household. Thus, with the increases announced for 2024, the income of a single parent household with two children will be nearly in line with OECD recommendations.

The rise in the minimum wage marks an important step in improving the living standards of those on low incomes. Equally as important is the additional mechanism against inflation, and the generous increase in the children’s allowance and in the in-work benefit. Taken together, these benefits are bringing those on low incomes closer to the concept of a living wage.  This is why it is so important that the value of these benefits keeps pace with inflation, also in future years.

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