Paying living wages can positively affect all aspects of business activity including bottom line

A new report indicates living wages not only offer a way out of in-work poverty and help tackle inequality, they also support business resilience, stability and growth.

As a route out of working poverty and a prerequisite to tackling growing income inequalities, living wages have growing support among business, civil society, and governments. A new collaboration of academics and experts has explored the business benefits of living wages alongside the high cost of inaction and found that paying a living wage can deliver:

  • More motivated and productive workforce, with lower staff turnover
  • Improved revenues and profits, for example, PayPal attributes much of its recent growth to the decision to pay ‘decent wages’ to all employees
  • Increased value chain resilience and performance
  • Reputational benefits
  • Improved investor prospects
  • Readiness for future regulatory reporting

The case for living wages: How paying living wages improves business performance and tackles poverty is jointly authored by the University of Cambridge Institute for Sustainability Leadership (CISL), Business Fights Poverty and Shift.

Anna Barford, Senior Research Associate, CISL said:

“Living wages are long overdue. Is it absolutely urgent and necessary for employers to switch from poverty wages to living wages. The most important benefit is people earning enough for themselves and their families to afford a decent standard of living. Living wages also offer considerable business benefits, within core operations, value chains and the wider operating environment. Conversely, not paying living wages comes with many costs.

“Living wages are a very good step towards being a good employer, but it doesn’t stop there. Firstly, living wages are a wage floor, not a ceiling. Secondly, living wages should be couched within decent work – this includes legal and social protection, health and safety measures, respect, worker representation, and much more. Lastly, we must continue to critically assess the roll out of living wages, and course correct as required. For example, being cautious about the gendered impacts of calculations that assume people work full-time in paid roles.”

Globally, 266 million wage earners receive below the minimum wage. The global population of workers living in households below the poverty line reached 630 million in 2019.

Living wages establish a wage floor above which workers’ remuneration for a standard working week is sufficient to afford a decent standard of living for themselves and their families. A company is significantly better positioned to deliver on its human and labour rights obligations when living wages are paid in its own operations and across its value chain. The report observes living wages can also help to mitigate risks within core operations, value chains, and the broader operating environment – and offer a clear, measurable indicator of corporate responsibility and values in action.

Zahid Torres-Rahman, Co-Founder and CEO, Business Fights Poverty said:

“At Business Fights Poverty, we believe in the power of business to help improve the lives, livelihoods and learning opportunities of the most vulnerable people and communities. Right now, we are at the beginning of a devastating wave of poverty, exacerbated by the effects of COVID-19, climate change and conflict. Businesses must step up, and fast, if we are to see a world with zero poverty in our lifetimes.  

“This report highlights the need to reshape the narrative on living wages. Paying a living wage is an opportunity for companies to have positive social impact at scale, in a way that benefits their business as well as their employees, people in their supply chains, and the communities in which they operate.  Living wages are a clear and measurable indicator of companies putting values and social purpose at the heart of their business practice.”

Across value chains living wages are integral to responsible sourcing strategies, and strengthen value chain stability, performance and resilience. Companies highlight a direct correlation between supplier performance and their treatment of workers. Interviewees for the report identified that suppliers who perform well emphasise the importance of paying their workers fairly and investing in their welfare. The report also highlights the risks of inaction indicating that without living wages value chains can become less reliable and more vulnerable to disruption because of social and industrial unrest, and performance can decrease due to poor worker health and morale.

The report also finds that paying living wages throughout global supply chains can reduce the push factors driving young people to leave their home countries in search of work.

Caroline Rees, President and Co-Founder, Shift said:

“This report moves us past near-sighted assumptions that paying living wages is simply a cost for business and therefore to be avoided. It sets out the striking evidence that companies stand to benefit when they make sure that people in their workforce and supply chain are paid a living wage, and where they invest in moving towards that critical threshold wherever wages fall short. The case for doing so will only strengthen as we see ever more investors scrutinising this key measure of whether a company is protecting the human capital it needs to succeed. There is now widespread recognition that living wages are key to addressing today’s growing inequalities, which threaten the social cohesion and stability on which our societies – and the business within them – all depend.”

Leading investors increasingly recognise the time for the ‘social’ in the Environmental, Social, and Corporate Governance (ESG) sphere is now. The living wage is a social topic that speaks to investors particularly well due to its potential for measurability. Payment of living wages is becoming more prominent in investor indices, such as the Dow Jones Sustainability Index (DJSI).

Consumers increasingly seek out ethical companies, and living wages can deliver significant reputational benefit. In a 2015 survey, 78 per cent of individuals stated they were more likely to buy the goods and services of companies that had signed up to the SDGs. Conversely, social controversies pose a considerable risk and potential cost to business.

The legal and regulatory environment increasingly prioritises living wages. Proactively paying living wages can help to preempt 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.

While the business case for paying living wages is powerful, the report acknowledges challenges, such as establishing the living wage for a specific place, as well as moving the living wage narrative from ‘nice to have’ to ‘essential’ to good business practice and upholding human rights. These can be addressed at the business level; harder, system-level challenges exist and include issues such as ensuring payment of a living wage when the company is one of many customers sourcing from a supplier, and a lack of supportive policy environments. These challenges demand collaboration between companies, civil society and governments.

Click here to read The case for living wages: How paying living wages can improve business performance and tackle poverty and inequality.

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