Fair Wages

Fair Wages Definition

Fair Wages refer to compensation or salary that is proportional to the individual efforts required by that particular role. A financial reward becomes fair when the employee perceives it to be fair. Such compensation is usually higher than the minimum wage and lower than the living wage.

The fundamental objective of fair wages is to ensure that individuals receive compensation concerning industry standards, market rates, and the level of service or value they deliver. Additionally, entities that offer fair compensation to their workers can expect greater commitment and enhanced performance from their stakeholders, fostering long-term dedication and productivity.

• Fair wages meaning refer to the compensation allowed to an individual that is equitable to the desired efforts, skills, and expertise required for the service. It is a remuneration considered as just by the workers.
• Relevant skills, market standards, and industry norms usually determine fair pay in any nation. Moreover, it is often higher than the government's minimum wage level and lower than the living wages.
• It ensures satisfaction, motivation, retention, and superior performance to initiate any entity's sustainable growth. Also, it makes companies ethically responsible while reducing poverty and social inequality in society.

Fair Wage Explained

Fair wages in labor law resemble remuneration received by the workers that reflect the established benchmarks within an industry, aligning with market standards and commensurate with the skills and expertise demanded by the service provider.

Wages and salary commissions are often negotiated with the workers' representatives to ensure that it is just according to them. However, in developed nations, the government believes in living wages whereby an individual should be able to earn enough to meet the basic needs of their families (standard family), such as food, clothing, shelter, education, and medical facilities according to their living standards. Fair wages are, however, lower than the threshold for living wages.

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector, as well as in Federal, State, and local governments. Covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour, effective July 24, 2009. Overtime pay should at least be one and one-half times the regular rate of pay for over 40 hours of work in a workweek.

Examples

Let's understand the concept with the help of hypothetical and real-world scenarios.

Example #1

Suppose in a nation, the minimum wage criteria for factory-level workers is $4.5 per hour. Indeed, the fair wages, as per the industry standards, are $5 per hour. The employees working in A Ltd., a garment manufacturing company, receive fair wages, i.e., $5 per hour. With that pay, the workers in the factory can meet the food, shelter, clothes, and some other needs of their family members.

Thus, they are happy with what they get and ensure a long-term commitment to their company, contributing to its sustainable growth and success. However, in another garment-making company, B Ltd., the employees are compensated at $4.5 per hour, which is below the fair wages standard. Thus, the workers at B Ltd. Often, they search for better job opportunities.

Example #2

The US manufacturing industry has seen a considerable resurgence, with a record $108 billion spent on construction related to manufacturing in 2022. It has developed approximately 800,000 new job opportunities over the past two years, bringing the total manufacturing employment to 13 million, which accounts for about 10% of the economy. A study conducted by McKinsey suggests that this trend could increase gross domestic product (GDP) by 15% over the next decade and contribute to the creation of up to 1.5 million jobs, especially for middle-skill workers. 

Despite the increasing role of automation in manufacturing processes, the new jobs require advanced skills in areas such as computer technology, robotics, and logistics. This manufacturing boom has not only created job prospects but also stimulated growth in related industries such as suppliers and transportation. It would further promote the stakeholder capitalist model, which prioritizes employee well-being and fair wages to maximize profitability and create long-term value in the industry.

Importance

Fair wages are essential in the current scenario of increasing living standards and rising inflation due to the following reasons:

1. Fulfils Basic Needs: When workers get fairly compensated, they are able to meet the necessities of their family members, such as food, clothing, and shelter.
2. Decreases Poverty: It enables the employees to earn a sufficient living for themselves and their families, thus stepping above the poverty line.
3. Reduces Social Inequality: As a majority of people in the society receive fair wages for fair work, it results in social stability and a gradual decline in inequality based on income levels.
4. Raises Consumer Purchasing Power: In a society, workers are the buyers. Therefore, fair remuneration increases their disposable income and the ability to purchase more products amidst upsurging inflation rates.
5. Increases Job Satisfaction and Motivation: It is the pay that employees feel is fair. Hence, it promotes job satisfaction and raises workers' morale and motivation to be more productive in the organization.
6. Employee Retention: By providing a competitive salary, companies can retain their employees for the long term.
7. Fosters Sustainable Business Growth: As the company has a committed workforce with excellent performance and long-term association, it can sustainably achieve its long-term business goals.
8. Makes Companies Ethically Responsible: Moreover, by paying fair wages, the companies adhere to the environmental, social, and governance (ESG) criteria, thus fulfilling their ethical responsibilities.

Difference Between Fair Wage And Living Wage

The living and fair wages in labor law have different definitions and perspectives, as discussed below:

Basis	Fair Wage	Living Wage
Definition	It is the compensation that is considered to be just by the workers based on the industry standards, efforts required for the role, and market rates.	It is the remuneration that is apt for the employees to keep up with the cost of living by fulfilling the amenities like food, shelter, clothing, healthcare, education, and transportation for themselves and their families.
Income	It is less than living wages but more than minimum wages.	It is higher than both minimum and fair wages.
Objective	Provide just compensation to workers according to the industry standards, market, and skills or expertise required for performing the work.	Offer compensation that empowers the employees to fulfill their basic requirements for food, clothing, shelter, education, healthcare, and transportation.
Scope	Ensure that the employee receives equitable compensation	Focuses on providing sufficient wages to meet the employees' cost of living
Considerations	Job skills and expertise, industry standards, market rates	Cost of living factors such as medical expenses, housing prices, etc.
Impact	Provide wages equivalent to the efforts required for a job	Eliminate poverty and improve quality of life

Frequently Asked Questions (FAQs)

Recommended Articles

This has been a guide to Fair Wages and its definition. Here, we explain its comparison with living wages, examples, and importance. You can learn more about it from the following articles – 

• Gross Wages
• Efficiency Wages
• Salary vs Wages