A 2022 paper from Business Fights Poverty, 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 labor rights obligations. This paper identifies some of the key benefits in each area 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.
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
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” labor 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 emphasize 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 labor issues. Living wages can offer cost savings by reducing time spent managing labor 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.
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.
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.
What is a living wage? According to the MIT Living Wage Calculator, it's the amount needed to cover the cost of eight basic categories: childcare, food, healthcare, housing, internet/mobile, transportation, civic engagement, other necessities, and taxes. All of these are variable within a range and are location specific. Several of these items have increased substantially over the past few years without wages keeping pace. For instance, fifty percent of renters pay more than a third of their salary on housing costs, and many of them pay far more than that.
The argument that there is no quick solution to widespread implementation of living wages is a fallacy. Remember how quickly the whole world pivoted and implemented solutions in March 2020 when we finally understood that COVID required us to take action? Providing at least a living wage for every fulltime employee (with a prorated amount for part-time employees) should be a primary economic goal of governments and companies alike. If for no other reason, paying a living wage is in every company's best interest because more money in the pockets of citizens means more money to buy the goods and services that every company is trying to sell.
The abbreviated list above, illustrating the ways to implement and the benefits of implementing a living wage, is compelling evidence that the ethic of mutuality--taking care of your bottom line while helping others take care of their bottom line--works in both theory and practice. This is just one aspect of what better capitalism looks like!
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