MEASURING LIVING INCOME

There are a number of methodologies that can be used to calculate or approximate a living income and or living income benchmarks. The Living Income Community of Practice, however, endorses one particularly robust, yet cost-effective methodology which is discussed below.

The Anker Methodology

 

Originally developed by Richard and Martha Anker (2017) for calculating a living wage, the Anker methodology has gained widespread acceptance, being used to estimate living wages, and more recently living incomes, in areas around the world. The methodology has been applied and championed by the Global Living Wage Coalition and a number of other organisations, and is endorsed by the Living Income Community of Practice. It has been instrumental in the establishment of the living income concept.

​This mixed methods methodology stipulates that to calculate a living wage or living income, one must first identify what it would cost for a household to afford a decent standard of living. In the case of living income, this decent living cost can then be used as a living income benchmark. This is because if a household is collectively earning an income the same or greater than what it would cost to live decently, then one can assume that they are, in fact, earning a living income. 

For calculating the cost of a decent standard of living the methodology details costing approaches for the following areas:

  • Decent food - Local market surveys, model diets and secondary data
  • Decent Housing - Rental costs, building costs, contextual and international housing standards & secondary data.
  • Non-food non-housing (such school and clothing) - Focus groups and secondary data.
  • Margin for unforeseen events - Additional percentage dependent on the context. 

All of these are costed with the consideration of international decency standards (e.g WHO, ILO and UNHabitat). The local context is also considered however, bearing in mind that local definitions of decency may vary geographically. This makes the decency standards normative.

The living income Community of Practice would like to support the correct use and uptake of the Anker methodology. This robust and cost-effective methodology for calculating the cost of a decent standard of living is also unique regarding the transparency that underpins it. The LICoP is going to provide resources to enable organisations to use the approach consistently, making it easier and faster for people to apply rigorously. 

NOTE: When calculating LIVING INCOME, one should only use the decency costing components of the methodology, making small, relevant adjustments for the INCOME context. Other facets of the methodology (e.g. working hours) are only relevant in the wage context.

LIVING INCOME BENCHMARKS

The Living income Community of Practice is a part of the ALIGN consortium which develops tools and resources for work on living income and living wage. We have collaborated on the creation of this database to provide the LICoP with updated and standardized living income and living wage benchmarks. Please visit this site for the most recent database of benchmarks.

 

MEASURING ACTUAL INCOME

A number of methodologies can be used for calculating the actual or existing incomes of smallholders and their associated communities. This page explains the composition of actual income and a number of actual income calculation options that have been used by various actors. 

Aligned Inclusive Living Income Narrative and Indicators

A new living income narrative and concrete metrics are needed to design inclusive living income programs and track progress. This guidance is intended to support companies, NGOs and governments to ensure investment programs and trade both make impact at origin while minimizing companies’ legal risk of buying from small farmers in new EU legislation. Without this aligned guidance from experts, there is a risk for a massive departure of buyers importing into the EU from the farmers and countries that most need trade for development. We hope that this document can be used widely across sectors and actors to further alignment and sharing and to further an inclusive living income movement.

Actual Income Composition

It is important to realise that the income of a smallholder household may not only come from the farm (via the sale of produce). Income can, in fact, come from multiple sources, and it is not uncommon for household members to supplement collective income by undertaking other activities (e.g. through additional labouring or artisanal work), which is labelled 'off farm income' in the right-hand diagram.

Furthermore, income can come from remittances (e.g. from family members that no longer live at home that occasionally send money), and as such it must be recognised that income related to farm economics may only be component of actual income. 

Understanding the composition of actual income is the first step in deciding how one might go about measuring it. The diagram on the right gives a more detailed breakdown of the elements necessary to consider as part of the actual income equation.

 

Household Economy Analysis (HEA)

HEA is a tool for examining and gaining insights on the current economic status of households and their interactions for addressing development issues and therefore looks closely at actual household incomes. Conceived in the 1990's, the HEA has been widely implemented by various governments and NGO's.

A unique livelihoods-based framework, the HEA is designed to provide a clear and accurate representation of household economies at different levels of wealth and across different parts of the world. It was developed around the premise that you need to know how people make ends meet in order to develop interventions that support rather than undermine them, and so that the impacts of wider economic or ecological change on livelihoods may be forecast.

​It can be used for a wide range of purposes including development planning, early warning, policy analysis, poverty analysis and reduction, and income analysis.

The HEA focuses analyses on three particular areas:1) How households in different social and economic circumstances obtain the income and food that they need, which is very useful for determining actual incomes.2) What assets households have and what opportunities and constraints are open to them, which is actually vey useful for thinking about increasing incomes & 3) What options are open to households in times of crisis, which can be used for preparing for and mitigating risk to communities

Household Income Survey's

Standardised household income surveys can also be used for determining actual incomes. These can require large sample sizes to undertake. A wealth of information already exists on actual household incomes in many countries which can be found through exploring secondary sources.  This is very often focused on particular commodities or regions.

Here you can find various information for download. 

 

The presentation "Gathering Data on Actual Income" and "Generic Example for Calculating Household Income" demonstrate various examples of household income surveys. The former includes approaches to calculation implemented by KIT, Wageningen University and Malawi 2020 and the latter is a presentation by GIZ describing their process of calculating actual household income using a generic example.

 

A webinar by Fairtrade International on their work to calculate actual incomes across their operations through survey's. Click here to view an example report

Also, the paper chapter (below) provides detail on the methodology for calculating actual household incomes using surveys. 

Income Measurement FAQ

Looking to measure incomes and the income gap? How do you measure household income when working towards a living income? How do you approach calculating the living income gap? What to do if data is missing or absent?

​This FAQ is designed to help LICoP members understand how to approach measuring smallholder household incomes and the living income gap. Measurement of smallholder incomes and the living income gap is key to understanding and taking action to improve livelihoods. However, smallholder incomes can be multifaceted and complex, and for many reasons, it is unlikely that any two measurement approaches will be the same.

When working towards living income however, aligning around measurement is important wherever possible. Alignment can support collective understanding, warrant comparability across actors and contexts, and ensure credible claims and well-informed decisions around income improvement. 

​This FAQ aims to support users indentify an approach to measuring incomes and the income gap, orienting to relevant income measurement concepts and principles and providing direction to appropriate guidance.