PPI Methodology

The creation of the Purchasing Power Index for a particular community or country starts with a standard market basket survey similar to the standard tool used in the formation of the Consumer Price Index (CPI) each month, quarter and year in the United States by the Department of Labor or the Market Basket that is used in many other countries. The CPI (or its parallel in other countries) is calculated after the prices for a given set of items (the "market basket") are researched throughout set locations in a country on a regular basis. The increase/decrease in the price of the items in the market basket is what determines the CPI amount.

Taking the market basket survey concept a few steps further, the Purchasing Power Index calculates the intersection of wages and prices documented through actual pricing and interviews, while evidencing the effects of inflation as experienced in different geographic areas within a country. It calculates the cost of items in terms of the minutes of work at specific wage levels that are required to purchase a specific item. This is called minutes of purchasing power, or minPP.

The actual pricing lists contain extensive lists of commodities, both consumable and non-consumable. The lists go beyond the contained lists of the "market basket". The specific country or community lists are created in collaboration with individual workers and their organizations, and with other NGOs working with them. The lists are not minimalist in that they do not contain the bare minimum that a worker might need in order to survive. The Purchasing Power Index is based upon the belief that all workers, along with their families and dependents, are entitled to a living standard that reflects the basic dignity accorded to all human beings.

The standards set forth in the Purchasing Power Index incorporate the following:

  1. Nutrition rather than mere calories
  2. Social, cultural and religious norms appropriate to a given country, region and group of people
  3. Educational needs

The PPI methodology assists those who use it to move beyond the questions of "Isn't any job better than no job?" and/or "Isn't this living standard better than what workers had before?" Neither question should be used as an excuse to make acceptable low wage standards and/or the exploitation of workers. While it is true that any job (with some notable exceptions) is better than no job, that should not be used as a reason to dignify low wage levels as appropriate, acceptable or just. Those who work expect that one of the results of that work should be the ability to better one's own standard of living and those of one's family and dependents.

The calculations of the PPI start with the current minimum wage. The calculations can be done for increasing wage levels. For each item priced, the cost in currency is translated into the cost in minutes of Purchasing Power (minPP) required for the purchase. Since each week contains a limited amount of minutes, the calculations reveal both the type and quantity of items that are affordable for a worker. In this way the purchasing power generated by actual wage levels can be determined. In addition, the effects of any specific wage scale upon the life of the worker, his/her family unit as well as the community can be clarified in an objective manner. The emphasis is on affordability with choice left to the worker.

The next stage calculates what would be a sustainable living wage in a specific geographic area. CREA does not use the expression "living wage" since a corporate official in one country stated that the wage paid was a "living wage" because the worker was living. We then used the expression "sustainable wage" This we amended to "sustainable living wage and/or sustainable living income" to signify a wage or income standard that reflects the needs and tights of workers to a dignified living standard, and the ability to move beyond only immediate necessity to planning for the future.

The PPI changes the context of the expression "minimum wage." These questions can then be raised.

  • Minimum in terms of what context?
  • Is a 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?

The Purchasing Power Index provides precise calculations accepted by corporations, non-governmental organizations, religious investors and other members of the socially responsible investing community as well as by the workers themselves. It is accepted as a tool that enables them to accomplish something else: to illustrate the reality of workers and their families anywhere in the world. The data that the PPI provides is an objective foundation for negotiations to adjust workers ' wages or income to the sustainable living wage or sustainable living income (SLW/I) level.