This live written discussion with a panel of experts explored the business case for paying living wages, and how can businesses can implement living wages across their value chains.
Thursday 14th September, 10am to 11am EDT / 3pm to 4 pm BST |
Background
The business case for paying living wages is that it can improve employee morale, reduce turnover, and enhance a company’s reputation and brand image. To implement living wages, businesses can conduct a cost-benefit analysis, determine a fair wage based on the local cost of living, and engage with suppliers and contractors to ensure that fair wages are being paid throughout the value chain. Additionally, companies can also invest in employee training and development programs to enhance the skills of their workforce and increase productivity.
This discussion with a panel of experts explored these issues and the implications for business action.
Panel
Abir Chowdhury, Sr. Manager, Development & Fundraising, Ashoka University
Chioma Izuwah, Business Fights Poverty Community Member
Haron Muturi, Wake and Shine SHG, Junior Leader, Tharaka Nithi
Francesca New, Global Senior Human Rights Manager, Mars
Claire Hancock, Head of Sustainable Sourcing, Fairtrade, Fairtrade
Moses Wamari, Decent Work Researcher, The Youth Cafe
Sherif Muçalla, Researcher
Tolu Seun, Business Fights Poverty Community Member
Hamish Taylor, Director, Shinergise Partners Ltd
Azfar Honore Johnson, Senior Economist, Anker Institute, Global Living Wage Coalition
Moderator: Business Fights Poverty
Questions
What is the business case for paying living wages?
How can businesses implement living wages across their value chains? And what are some of the best examples?
How can we better work together to support living wages across the value chain?
Format
This is a text-based discussion which remains open, so please do continue to share your insights.
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Welcome to this Business Fights Poverty Online Written Discussion - where we examine the latest thinking on paying the living wage - we will start this discussion shortly
There are three abiding concerns on why it makes good sense for businesses to pay a living wage.
The first is that this is what Social Justice demands. Article 23 of the Universal Declaration clearly states: “Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.” Further, many businesses have signed up to the United Nations Guidelines, which fundamentally call for respect of human rights. Commensurately, companies have committed to seeing that all workers within their value chains be paid a living wage. Living wage is considered an enabling right as it generates important positive spill-over effects on other human rights and several of the 17 SDGs to be achieved by 2030, particularly SDG 1 on ending poverty in all its forms, SDG 5 on gender equality, SDG 8 on decent work and economic growth, and SDG 10 on reducing inequalities.
Secondly, there is ample research that points to a strong, positive correlation between employee wellbeing, productivity, and firm performance. There exists, both theoretical and empirical literature that points in this direction; The evidence-base is steadily mounting that this correlation is, in fact, a causal relationship (running from wellbeing to productivity). A critical factor in raising productivity is improving the economic security of workers, along with social relationships and work-life balance. Research related to ‘human relations theory’, ‘expectancy theories’ and ‘emotions theory’ argues that employees’ working conditions affect workers’ productivity and in particular, positive emotions and social relationships lead to heightened motivation, and hence better job outcomes and organisational citizenship. In fact, one salient work has examined the relationship between employee satisfaction and long-run stock market returns using a value-weighted portfolio of the “100 Best Companies to Work for in America”. The author shows that, during the period 1984 to 2011, these companies had between 2.3% and 3.8% higher returns than the industry average. (See, Edmans, A (2012), “The link between job satisfaction and firm value with implications for corporate social responsibility”, Academy of Management Perspectives 26(4): 1-19.
Agree!
At Fairtrade we believe that paying a living wage is also the right thing to do. Fairtrade’s vision is to ensure that the people who produce the goods and food we consume have the resources to flourish, both in times of stability and times of crisis. At the heart of this vision is our deep-rooted commitment to living wages. The right to a living wage is enshroud in the Universal Declaration of Human rights. Living wages are also recognised as a major contributor to achieving several of the UN’s Sustainable Development Goals, including the number one goal to eradicate poverty.
I certainly agree with Azfar’s second point. We know that if you pay better wages, that there can be benefits to business such as improvements to retention levels, increase in quality of new hires. This then improves customer service, team performance and engagement levels as employees can focus on the core deliverables for their role, rather than constant hiring and training.
Third, a brand’s reputation can be affected by bad practices; poor conditions can result in reputational damage while good conditions can help improve quality, productivity and the brand’s image. In the aftermath of Covid-19 the priority customers put on employee welfare has been heightened. Shareholders are asking about the risk to company reputation, which has increased scrutiny into workforce management. Business now has an opportunity to reset, and its conscience is the customer. Through powerful social media and movements, companies and brands can be held to account. Anyone can see in on the processes, production methods, compensation, diversity, inclusion, well-being and ethics. As Aron Caplan, Strategy Director at MS Saatchi, says: “The brand is an ecosystem with numerous internal and external connections, all of which must align to it. Treat employees well, word gets around and it helps build an employer brand.”
Such good points Azfar. I believe there is a clear business case for paying living wages. Workers who receive a living wage are likely to more motivated and productive, have higher morale, take less sick leave and remain loyal to the company. For a business this means a reduction in staff turnover, absenteeism and an incentive to invest in the skills and development of long term employees. This leads to an improvement in the overall working environment which can contribute to greater productivity.
This really echo’s my third point too which is that besides ethics, living wage gaps represent a reputational risk for many buyers and retailers. Considering the expanding legislation on Human Rights and Environmental Due Diligence (HREDD), the risk of not paying a living wage is also increasingly a legal one.
Businesses see bridging the living wage gap as the right thing to do from a productivity, ethical and risk perspective and as consumers seek to make more ethical choices payment of living wages can deliver reputational benefit and customer engagement. Consumers increasingly concerned about human rights and therefore partnering with Fairtrade shows commitment to this. A study published in December 2022 has also shown Fairtrade to be a uniquely valuable partner for companies that take sustainability seriously, and who want to reduce their ESG risks and improve human rights in their supply chains.
Quite right, Claire. Actually, I saw that in a flower farm in Uganda while doing a study for Fairtrade in 2019. It was almost as if the workers had taken a loyalty oath.
A company that is not paying a Living Wage or working towards paying a Living wage, is overstretching and reinforcing a precarious situation for its lowest paid workers and we know that these roles are often already occupied by the most vulnerable workers; migrant workers, or those just starting out in employment, women and BIPOC workers. Paying Living Wage enables the right conversations to take place that sometimes mean disrupting the status quo and existing operating models that no longer align with a fair and just economy.
Good point Francesca - Women working in agriculture are overrepresented in low-paying jobs. Fairtrade believes that wage improvement can also support reducing the gender pay gap for women.
Admittedly, this is a complex issue. Many companies are increasingly being held responsible for the actions of their suppliers, especially those in the lower tiers of their supply chain. The question that then arises is to what degree can we hold the principal buyers/companies responsible for the actions -such as low wages and bad treatment of workers- of their suppliers. In this regard, it could be suggested that buyers need to be more circumspect in forging contractual collaborations with suppliers and interact only with those who are willing to comply with ethical principles. This is possible because in supply chains where buyers enjoy significant leverage over suppliers in developing countries, it has been argued that buyers’ requirements can have a profound impact on the labour standards of suppliers. Further, in response to bad publicity and activist pressure, many firms in consumer-facing industries have developed internal private compliance initiatives to assess suppliers’ compliance with codes of conduct; well-designed codes of conduct, management systems and audit procedures all play important roles in improving working conditions and in the implementation of living wages.
It starts with mapping and understanding. Particularly in large multinational businesses, different businesses and countries may be at a different points in the journey, so first it is key to have this understanding of the current status. It is helpful to think across the value chain, considering vulnerability of people and level of influence of the company to drive change.
