Our key takeaway: The payment of living wages is increasingly seen as an equivalent on the social side of the ‘race to zero’ for the environment. A growing number of companies are making living wage commitments - including with regard to their suppliers. Ensuring living wages are paid helps tackle widespread in-work poverty and inequality - but also helps enhance employee satisfaction and worker retention, increases productivity, and reduces costs managing labour issues - amongst other business benefits. But these human and business benefits can only happen if companies shift the narrative from a status quo to urgent action, and partner with others to develop industry- and sector-level solutions, and advocate for policy reforms and market incentives.
Business Fights Poverty, the University of Cambridge Institute for Sustainability Leadership and Shift have released ‘The case for living wages: How paying living wages improves business performance and tackles poverty’ (April 2022). The report delves into the benefits of paying living wages, provides new insights into the challenges and opportunities presented by living wages, and identifies what more can be done on living wages.
- Renewed attention for living wage needed: The paper describes how globally, “630 million people are in working poverty, earning under US$3.20 per day in terms of Purchasing Power Parity (PPP). In the face of this challenge, minimum wages are often set too low for workers and the dependents in their households to escape poverty, as well as not having wide enough coverage and sometimes not being enforced.” Widespread in-work poverty and inequality - further exacerbated by COVID-19 - underscore the importance of living wage. The paper notes that “[t]he payment of living wages is increasingly seen as a social equivalent of the ‘race to zero’ for the environment. As new commitments are made, and new collaborations form, living wages are becoming an important guiding principle and indicator of intent for any good business.”
- The business case for living wage: In addition to detailing the human rights and social impact benefits, the paper - which relies on literature review and 31 expert interviews - details the advantages for business of paying living wages. When it comes to core operations, the paper describes how living wages “lead to lower staff turnover, which reduces recruitment and training costs” and “can promote a more motivated and productive workforce, by improving morale and commitment.” The paper describes how “[g]reater economic security, higher motivation, and better health contribute to employee satisfaction, improving the overall working environment and contributing to productivity.” Finally, “[t]here are early signs of living wages improving revenues and profits” of companies. When it comes to the value chain, living wages “strengthen value chain stability, performance and resilience.” This can include “‘ring-fencing’ labour costs in price negotiations and investing in suppliers’ improvements.” Companies also report a correlation between suppliers who perform well and those who emphasise the importance of paying their workers fairly. Finally, living wages “can offer cost savings by reducing time spent managing labour issues, which often stem from low wages.” The paper also delves into a range of ways in which the operating environment benefits from payment of living wage, including improving the reputation of business, creating a stronger social license to operate, meeting investor expectations and creating a stronger business environment.
- What’s needed ahead: The paper underscores that there are steps that can be taken at the company level to make progress, which include “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.’” The paper underscores how living wage payment can pose a challenge “when the company is one of many customers sourcing from a supplier” and/or when there is a “lack of supportive policy environments for the living wage.” There are two shifts that would help accelerate progress. “Firstly, we need to change the dominant narrative away from poverty wages being seen as an unfortunate and unavoidable by- product of global capitalism. Instead, wages are within the power of businesses to adjust. The old status quo must give way to urgent action. Secondly, leading companies need to partner with each other, non-profits, financial institutions and multilateral organisations to develop industry- and sector-level solutions, and advocate for policy reforms and market incentives.”