information for transformational people

Living Wages 246The case for Living Wages

From a report by Business Fights Poverty

A 2022 paper from Business Fights Poverty, the Cambridge Institute for Sustainable Development and Shift, with support from Unilever, shows how paying living wages throughout core operations and the value chain strengthens business performance, resilience and stability, while delivering measurable social impact and enabling businesses to more effectively deliver on human and labour rights obligations.

This paper identifies the key benefits in each area are as follows:

Core Operations

  • Living wages lead to lower staff turnover, which reduces recruitment and training costs. Employees remain at the company because they want to and can afford to do so while achieving a decent standard of living. They develop more and better skills, contribute to institutional memory, and then provide on-the-job support to newer employees. In addition, employers are incentivised to invest in their long- term workers, e.g., through training.
  • Living wages can promote a more motivated and productive workforce, by improving morale and commitment. These benefits also link to reduced absenteeism, better health, and greater economic security. Up to 4/5 of employers indicate that work quality increased once they introduced living wages.
  • Greater economic security, higher motivation, and better health contribute to employee satisfaction, improving the overall working environment and contributing to productivity. Relationships between staff members and managers seem to improve after Living Wage accreditation, and employee loyalty increases.
  • There are early signs of living wages improving revenues and profits. For example, PayPal attributes much of its recent growth to the decision to pay ‘decent wages’ to all employees.

Value Chains

  • Ensuring living wages are paid in the value chain is nascent practice for most companies, and insights on opportunities, benefits and challenges are only starting to emerge. What is clear is that sourcing companies are recognising their ability to influence supplier behaviour on living wages. For example, Unilever has committed to ensuring that everyone who directly provides goods and services to the company earns at least a living wage or income by 2030. 
  • Living wages are integral to responsible sourcing strategies, and strengthen value chain stability, performance and resilience. Companies are shifting procurement spending towards long-standing suppliers with shared values and standards. Responsible procurement practices include “ring-fencing” labour costs in price negotiations and investing in suppliers’ improvements.
  • Companies highlight a direct correlation between supplier performance and their treatment of workers. Interviewees for this paper identified that suppliers who perform well emphasise the importance of paying their workers fairly and investing in their welfare.
  • Living wages offer a measurable pathway to improve supply chain transparency and social impact, while reducing the costs of managing labour issues. Living wages can offer cost savings by reducing time spent managing labour issues, which often stem from low wages.

Operating Environment

  • Consumers increasingly seek out ethical companies and living wages can deliver significant reputational benefit. In a 2015 survey, 78 percent of individuals stated they were more likely to buy the goods and services of companies that had signed up to the Sustainable Development Goals (SDGs). Conversely, social controversies pose a considerable risk and potential cost to business.
  • Paying direct and supply chain employees a living wage can increase their disposable incomes, thus increasing market size in
  • key communities and creating new customers. A Canadian study found that a 1 percent increase in minimum wages translates into a 0.5 percent increase in real retail sales.
  • Leading investors increasingly recognise that the time for the “Social” in the Environmental, Social, and Corporate Governance (ESG) sphere is now. The living wage is a social topic that particularly appeals to investors due to its potential for measurability.
  • Payment of living wages is becoming more prominent in investor indices. For example, the Dow Jones Sustainability Index (DJSI).
  • Mitigating the systemic risk of poverty and inequality is the primary long-term motivation for investors to promote action on living wages. Businesses that address living wage concerns will be seen as less risky investments, thus likely to attract more capital.
  • The legal and regulatory environment increasingly prioritises living wages. Proactively paying living wages can help to pre- empt or prepare for future reporting and regulatory requirements.
  • Looking ahead, it is likely that payment of living wages will become embedded as a new labour standard for businesses.
  • Wage increases stimulate local economies, leading to positive multiplier effects, and contribute to societal well-being. The “living wage dividend” may be as high as £700 per person in London, assuming a quarter of low-wage employees are increased to living wages. This is through creating a better, more stable operational environment for businesses.
  • Paying living wages throughout global supply chains can reduce the push factors driving young people to leave their home countries in search of work.

While the business case for paying living wages is increasingly powerful, some operational and strategic challenges slow this transition. Challenges that can be addressed at company level include establishing what the living wage is for a specific place, as well as changing business culture, systems and incentives in a way that shifts living wages from “nice to have” to “essential to good business practice and upholding human rights.”

Harder, system-level challenges include ensuring payment of a living wage when the company is one of many customers sourcing from a supplier. There is also a lack of supportive policy environments for the living wage. These challenges demand collaboration between companies, civil society and governments.
There is a handful of useful questions that any business should ask themselves when starting their living wage journey, regardless of industry sector or location of operations:

  • What is a living wage in the countries, regions and cities in which we operate?
  • How can we be certain that we are paying living wages in our core business operations, and advancing wages in our value chains?
  • How can we implement policies, targets and management systems to close the gaps where they exist?
  • What actions are we taking to ensure that our procurement and recruitment practices, and other aspects of our business model, don’t work against the payment of living wages in our core operations and value chains?
  • Where are the major systemic obstacles to achieving living wages and how can we partner with others to address them?

Download the report from here.

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From a report by Business Fights Poverty, 02/11/2022

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