The living wage: why you can’t afford to ignore it
June 04, 2014
Mitun Majumdar says that the living wage is becoming an important benchmark that global companies must confront.
The concept of a living wage is intuitive in principle – everyone should be paid fairly for the work they do, enabling them to attain a decent standard of living for themselves and their families. In practice, many organisations are grappling with what this means for the wages they set for their own employees and how they influence wages for workers in their supply chains.
When it comes to international standards, the Universal Declaration of Human Rights states:
Article 23 – 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.
Article 25 – Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
As companies become ever more global, the question of what constitutes an adequate standard of living and therefore what is the right wage to pay is not as straightforward as one would think.
Increasingly complex supply chains, spanning multiple countries, mean that visibility over wages paid by second and third tier suppliers is a challenge. Additionally, each country will have its own benchmark for poverty levels and varying costs for basic services such as housing, energy and food. Governments have set minimum wages in both developed and emerging markets. These serve as a legal minimum, often set in line with the official poverty line, but frequently falling short of what is required to achieve a decent standard of living beyond basic subsistence in areas such as health, food, sanitation, housing and education.
Tragedies such as the collapse of the garment factories in Rana Plaza highlight the reality of poor working conditions that still exist for many. Garment workers still remain some of the poorest in the world and while efforts have been made to raise wages they are not keeping up with rising food and energy costs.
Arguments against the living wage tend to focus on how higher labour costs for employers could potentially lead to fewer jobs. At the macro-level, countries fear minimum wages that are set too high could result in industries re-locating to a different country with cheaper labour costs.
These concerns are real, but there are many examples of how paying a living wage can not only help the business itself thrive but also bring wider economic benefits. A study by Georgetown University looking at the impact of Alta Gracia – a garment factory in the Dominican Republic that pays all its workers the living wage (more than 3 times the minimum wage) – found that the enterprise had not only transformed the lives of its employees and their families but had also generated wider ripple effects in the community. Employees could now afford to spend money on local cafes, on improving their houses and buying consumer goods, helping to create new local businesses and employment opportunities. Evidence also suggested that some of the costs from higher wages would be recovered through operating efficiencies – greater productivity, quality of work and reduced absenteeism and turnover.
Policymakers and companies both have a role to play in helping all workers to attain the decent standards of living, economic opportunities and dignity they strive for. For companies in particular, the first step is to understand the wages and benefits being paid to their own workers as well as those in their supply chain worldwide.
In order to improve something, you must first be able to measure it. Only by gathering data to understand current remuneration structures will a company then be able to work with its business and social partners to set a framework for fair compensation that is aligned to the concept of a living wage.
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