What's a 'living wage' and why's paying it good for business and workers?

Most of us are by now well-versed in the climate crisis and the urgent need for businesses, governments and individuals alike to help eliminate harmful emissions and halt our planet’s temperature rise. But what many are yet to grasp is that equally urgent action is needed to stem the social crisis that is running in parallel.

Much like climate change, rectifying the world’s social imbalance requires a specific set of targeted actions to avoid catastrophe. One of the most powerful actions we can take to address social inequality is to encourage the widespread adoption of living wages.

A living wage, or living income, is the local remuneration received for a standard workweek that is sufficient to afford a decent standard of living for a worker and their family. It should be enough to provide for all basic needs, as well as some discretionary income and provision to cover for unexpected events.

Often, a living wage is higher than the minimum wages governments mandate and, as a result, many business owners are expressing concern over how living wages may negatively impact their bottom line. However, the logic driving this is flawed and, quite frankly, short-sighted to any business with future intentions.

No longer will it wash for businesses to pay wages that essentially keep their workers in poverty, nor can we continue to brush off poverty wages as an unfortunate byproduct of capitalism.

It’s time for businesses around the world to take responsibility and adjust because – and here’s some good news – when workers earn at least a living wage, everyone benefits.

Consumers are increasingly seeking out ethical brands and companies that are prepared to lead the charge on issues of importance to them, and they will vote with their wallets when they discover a brand is not living up to those expectations.

With social performance in supply chains under growing scrutiny, living wages can deliver significant reputational benefit. Additionally, there are several other reasons, beyond brand image and customer loyalty, as to why the adoption of living wages can be viewed as an investment for success, rather than a cost to mitigate.

Elevating workers out of working poverty grows consumer markets particularly in emerging and developing countries, increasing consumer spending, stimulating further demand and creating more economic opportunity.

A recent Canadian study found that a 1% increase in minimum wages translates into a 0.5% rise in retail sales. Furthermore, living wages increase engagement and productivity, reducing turnover of workers and associated recruitment and training costs.

Businesses that adopt living wages may also benefit from reduced business disruptions due to better worker relations. PayPal, for example, attributes much of its recent growth to the decision to pay ‘decent wages’ to all employees.

On a wider level, living wages can also strengthen value chain stability, performance, and resilience. It shouldn’t be a surprise that many companies highlight a direct correlation between supplier performance and their treatment of workers.

Therefore, responsible procurement practices and investments in longer-term supplier relationships are incredibly important.

Of course, it is not up to the business community alone to address this globally significant issue. There is a strong need for governments to introduce policy reforms and market incentives to ensure that legal minimum wages reflect at least living wages.

Raising pay for the lowest earners is an effective fiscal tool that a government can employ to immediately stimulate the economy. Increased wages also allow governments to share the social security burden with employers, by ensuring wage levels keep pace with living costs.

Investors, too, have a critical role to play in holding companies to account. They can do this by putting living wages at the heart of their environmental, social and governance criteria, offering companies a measurable tool to quantify social impact to stakeholders and creating a powerful intervention in the process.

At Unilever, we achieved living wages for our direct employees in 2020 and, after doing so, set a new goal in 2021 to ensure everyone who directly provides goods and services to Unilever will earn at least a living wage or income by 2030.

To do this, we are partnering with industry experts, suppliers, governments and civil society to influence change and leverage our combined experience and networks to accelerate our social equity efforts. By working with partners across industries and jurisdictions, we can scale our impact and take meaningful action.

One of the ways we are working to advance global efforts in this space is by working with trusted organizations to explore the creation of an independent and transparent global database of living wage and living income data to bring greater consistency and confidence, and expand global data coverage around the world.

We are also supporting our suppliers’ efforts by inviting them to make a Living Wage/ Living Income Promise. To those that do, we share learnings from – and details of – the process we employ to achieve our own living wage goals, and direct them to tried and tested living wage tools, experts and resources.

Our brands are on board too; Ben & Jerry’s, for example, has launched a Living Income Accelerator, a unique fund created in partnership with Fairtrade to advance work that promotes a living income for farmers.

Some may argue the growing discourse about the importance of paying living wages has come at an inopportune time for businesses, with many battling ongoing supply chain disruptions, cost inflation and the many consequences of those challenges.

But the evidence tells a different story – that reducing social inequality by growing the incomes of those who need it most is an important and compelling way to protect and grow a business over the long term.

It is time to rewrite the narrative; living wages are not a cost to businesses, they are a measurable and tangible contributor to business success.