Why living wages make business sense
Viewpoint from Irina van der Sluijs, Human rights expert working in sustainable finance and member of the citizens’ committee for Good Clothes, Fair Pay.
The call for living wages is increasingly heard. Post pandemic the world is facing a deepening crisis of inequality. Why should that matter to business? Isn’t its main interest to keep costs and thus labour costs low? Well, perhaps in a narrow sense, yes, but if you think about it a bit longer this may not be the case anymore. So let me give you three reasons why businesses should be bothered by wage levels in their value chain. Whether in the apparel and footwear or other industries sourcing from emerging markets.
A bit of context to start: living wages are earnings that enable workers to provide for themselves and their families. They cover basic needs. Why do we need them? Simply because in many producing countries of our garments, electronica and food the legal minimum wages or bargained wages are often not enough to live from. Business knows that of course, that is why globalization seems such a good deal; low-wage countries provide cheap labour and in return, they get trade and employment. The deal however is lopsided. And workers are in a squeeze between their governments that want to grow economies and their employers who want to stay competitive in international markets.
But as said, it is not only in the interest of workers to advocate for better wages in all business operations. The environment for international business and its financiers has changed, incorporating more and more human rights and sustainability factors into regulatory expectations. To name two developments: the draft EU Corporate Sustainability Due Diligence Directive (CS DDD) which will make human rights due diligence and mitigation mandatory and the Sustainable Finance Disclosure Regulation (SFDR) which challenges finance to classify its sustainable portfolios. Getting ready to comply with these expectations is thus the first reason why businesses should have an interest in living wage in their value chains.
Another more intrinsic reason to extend sound human capital management to value chains is that it makes business sense! It secures steady supply chains. Labour strikes, pandemics, and social unrest are disrupting supply chains, so in this new reality, business should take labour into their risk management equation. Emerging markets are always the most sensitive to economic and political risk. Moreover, and here is the good news, studies show that decent work environments contribute to the bottom line. With less staff turnover, less sick leave, better teamwork and thus greater productivity. In the apparel industry in particular there is also the gender issue, as around 80% of the workers are women. Women in producing countries are the engine of families, child development and securing a growing local market with a potentially new customer base.
Lastly, living wages bring circularity into the human rights space. On the climate and nature front, we are already aware that circularity is a must to safeguard future access to common goods and natural resources as fuel for business. Human capital is fuel too and giving workers across the globe the chance to thrive will benefit business. If workers continue to be exploited and marginalized, large-scale migration and growing conflict will not be a fruitful business environment to operate in. Nor will it help reputational matters. Needless to say in this regard, is that for the new generation of customers, Gen Z, this all is a no-brainer. This generation will demand a different way of working and consuming.
In sum, doing good on the surface will not be good enough anymore. It is time to close the loop and leave no one behind. If not for altruistic, than for plain material reasons.