How businesses can achieve the living wage with surprising benefits

Inequality threatens global stability; as the gap between rich and poor increases, it places in peril the viability of the global economy. Companies and the financial sector have a vital role in creating an economy that supports decent livelihoods and sustainable growth and better wages are a big part of the equation.

According to the OECD, the average income of the richest 10% of the population is nine times higher than the poorest 10%. Rising food and energy costs, global conflict and the continuing fallout from the COVID-19 pandemic only exacerbate the problem.

At IDH, one of our goals is to achieve strong, resilient businesses that fuel prosperity for millions of employed people. When companies delve into the topic of living wages, they quickly find several potential benefits: greater productivity, lower turnover, more substantial worker commitment and a better quality of life that contributes to stronger communities.

As we rebuild the global economy to confront the challenges we face, there is an opportunity to reconsider how business models can benefit wider society, break the cycle of poverty and strengthen business fundamentals. There is an increasing unity in the call for better jobs among businesses, workers and the financial sector.

Unilever, for example, has committed to living wages for every worker in their supply chain. L’Oréal has extended a commitment to paying living wages for the employees to all of its strategic suppliers’ employees by 2030. Companies have realized how the moral imperative for a living wage complements the business argument. Well-paid workers are integral to a profitable, sustainable and resilient business. Poverty wages no longer have a place.

The journey can seem daunting for companies yet to explore the living wage concept. Currently, just 4% of all companies have targets or commitments toward paying a living wage. Moreover, it’s clear that numerous barriers give companies pause, some real and some perceived.

Chief among these is the cost. Without a proper understanding of the actual costs of paying a living wage, its scale and scope can make it seem impossible. A firm grasp on the numbers and the size of the gap between current wages and a living wage is crucial for making the seemingly impossible attainable.

Beyond the cost, other barriers frequently spoken about include:

We have found that it is possible to turn these barriers into bridges. The IDH Living Wage Roadmap provides a useful framework and the necessary tools to guide you through the living wage journey.

The Roadmap was developed in partnership with brands, retailers, suppliers and sustainability organizations, including civil society and standards setters. Through our research, we have identified five steps companies can take to transform their approach.

Barriers to living wages differ among supply chain actors but the common thread to providing them lies in collaboration. We can only achieve a universal living wage when every partner assumes responsibility. Together, we can build a better, more resilient global economy that supports decent livelihoods. Learn more about how companies are working individually and collaboratively to make progress on living wages in global supply chains.