Paying the living wage isn’t just good for the world – it’s also good for business. Here’s how to do it…

Everyone benefits from decent wages. Monica Romis of the Oxfam Business Advisory Service sets out five steps firms can take to pay them – and get on the right side of the battle against global poverty

As the global elite gathered in Davos a few weeks ago, it was clear the pandemic has been producing the biggest surge in income inequality we’ve ever seen, with rocketing food and energy prices hitting the incomes of the poorest. As Oxfam’s report for Davos, Profiting from Pain, revealed, 62 new food billionaires have been created over the past two years, while hundreds of millions have been pushed into extreme poverty.

This blog focuses on one crucial tool that could potentially have a huge impact on this global inequality and poverty crisis: living wages – pay that allows individuals or families to afford adequate shelter, food, and other necessities. As Oxfam International’s executive director Gabriela Bucher said at Davos: “If implemented properly, living wages are a truly structural and strategic tool to reduce economic inequality, as well as gender and racial inequalities.”

A broken economic model

Work should offer a route out of poverty and reduce inequality – yet too often it doesn’t. As Oxfam’s Behind the Barcodes campaign analysing supermarket supply chains has highlighted, in-work poverty too often is the norm and gender discrimination is woven in. Oxfam interviews with seafood workers in Indonesia revealed the hardships of in-work poverty. One worker interviewed, Budi, had to peel 950 shrimps an hour to earn just the minimum wage. To meet the targets expected, she would often stand for nine hours, with no toilet break.

Cases like Budi’s show how the current economic model based on poverty wages is broken and fuelling today’s inequality crisis. Paying a living wage instead could enable workers like Budi not only to meet their basic living needs, but also to save, to become more resilient to shocks and to improve their prospects. It would help tackle global poverty and achieve the Sustainable Development Goals.

Good for workers – and for business too

The business case for a living wage is clear: we have seen that, where workers have wages that meet their needs, they are likely to perform better, gain new skills, take less sick leave, be more motivated, and remain loyal to the company. In short, paying a living wage is good for business, workers, and ultimately wider stakeholders including communities and governments. Yet living wages remain beyond the reach of many workers worldwide, keeping millions locked in a cycle of poverty. 

So how can we deliver the benefits of a living wage for workers, for businesses and the world? In our years working on the living wage, Oxfam has learned what works. Through the Oxfam Business Advisory Service, we are now supporting companies in developing and implementing programmes and strategies that tackle barriers to living wages.

Five steps to decency

To start on the journey to paying living wages, we recommend firms start with these five steps:

1. Make a senior-level commitment to the living wage, embedded in corporate strategies and management, with specific targets and a timeline for closing gap.
2. Take a gender lens and tackle the gender pay gap at the same time by collecting separate data on the pay and progress of women. Women are at greater risk of not being paid a living wage and ignoring their specific challenges will entrench existing inequalities. Firms should introduce indicators to check that all genders receive the same benefits and pay impact.
3. Adopt better procurement practices and ensure you share value equitably across supply chains. Oxfam’s Unilever Vietnam study and research done for Behind the Barcodes 2022 shows that value is unfairly shared along the supply chains. The need to pay all workers the living wage needs to be factored into setting prices with suppliers and in procurement practices, while suppliers should be given the incentives and resources to pay a living wage.
4. Support freedom of association and collective bargaining agreements: delivering a sustainable living wage isn’t just about delivering a number but about sharing power over the process of raising wages. For a living wage approach to be effective and sustainable over time, wage-setting must be locally-owned. This means promoting and requiring respect for freedom of association, collective bargaining, and dialogue between employers and workers. This ensures that any value created through sustainable practices or investments with supply chain partners passes on to workers in the form of higher wages. In the initiative Malawi Tea 2020, the gap between existing wages and the living wage benchmark shrank by one third, mostly thanks to workers negotiating their first collective bargaining agreement in 90 years.
5. Assess the impact of paying the living wage for both workers and the business. That means involving workers in verifying the impact themselves and publishing progress on implementing living wages annually (including separate data on women). Companies need to be open and transparent throughout the process by sharing challenges and learnings.

A crucial overarching lesson we’ve learned is that it’s not just about rates of pay but about taking a worker- and gender-centric approach that strengthens workers’ power to ensure they receive fair pay. Workers’ voices and the voices of women specifically should be placed at the centre from the start – and they should be involved in the implementation of solutions.

Five more steps to take your living wage commitment to the next level

The above five steps should just be the start. Companies that are serious about decent wages will need to join forces with other actors to tackle broader systemic and structural barriers. That means joining campaigns and initiatives and collaborating with others to support living wages throughout the economy. This might include:

1. Working with stakeholders on credible living wage benchmarks.
2. Getting involved and supporting wage initiatives and campaigns such as ACT in the garment sector and Asia Floor Wage Alliance.
3. Joining in advocacy to press for higher policy standards (such as this letter asking to include a living wage and income in the EU Directive on Corporate Sustainability Due Diligence).
4. Advocating for higher minimum wages in national economies (as in this Cambodia example), since legal minimum wages in many countries too often fall short of the cost of living.
5. Working with certification schemes to strengthen standards (such as Fairtrade on plantation grown bananas).     

What about governments and investors?

Of course, it’s not just businesses that will deliver the goal of living wages for all. Governments and investors will need to play their part to create an enabling environment for the living wage.

Governments can:

1. Set legal minimum wages that are more closely aligned to living wages.
2. Pass legislation that assures freedom of association and collective bargaining.
3. Coordinative joint initiatives on the living wage across borders to level the playing field (as in the EU)

While investors can:

1. File shareholder resolutions for investee company to pay living wages.
2. Monitor investee actions taken towards living wages in supply chains.
3. Add living wage compliance as one of the criteria in their sustainability standards.

A decent wage for a decent life

Workers need a decent wage to live a decent life, yet it is beyond reach for many, keeping hundreds of millions locked in poverty. We need to change this, and the escalating inequality crisis means we need to change it now.

As we’ve shown above, a few critical interventions that are co-created with workers and producers can make living wages a reality.  As billions of people confront the global cost-of-living crisis, paying a living wage is necessary, urgent – and doable.

Want to know more? Read this post by Oxfam International Executive Director Gabriela Bucher on raising the issue of the living wage at Davos. And find out more about the Oxfam Business Advisory Service (OBAS) here and the way Oxfam works with the private sector here.