The University of Oxford has become the largest employer in the city to pay the "Oxford Living Wage'.
Almost 2,000 employees, mostly office, library, museum and security staff, will see their wages rise to at least £10.21 per hour from 1 August.
Pro-vice chancellor Prof Anne Trefethen said the move demonstrated a "commitment to fair pay".
Oxford City Council introduced a living wage in 2009 in recognition of the high cost of living in the city.
The wage is set at 95% of the Living Wage Foundation's rate for London and takes into account Oxford's rents, property prices and cost of travel.
The current minimum wage in the UK is £8.21.
'Talks with colleges ongoing'
The cost to the university, which employs about 17,000 people across the city, is estimated to be £5.5m over five years.
The city council said discussions were "ongoing" with the Oxford's colleges, which employ people independently of the university, about also paying the higher wage.
Susan Brown, leader of the council, said she hoped other employers would "follow the example of the university".
"The cost of living in Oxford is one of the highest outside London, but wages in the lowest paid jobs often do not reflect this," she added.
The city council said analysis showed a greater proportion of women (55%) would benefit from the increased wage.