The Business Case for a Living Wage

Posted on January 8th, 2020

The Business Case for a Living Wage

The Business Case for a Living Wage

Raising your wages to match a living wage can initially involve an increase in costs. It can, however, also bring benefits in the short to medium term. Taking care of workers can improve your bottom line. Higher wages will be welcomed by your workers. They will be more motivated and work longer for your company. As a result, the turnover of staff will decrease and the costs for hiring and training new workers will be lowered. Happier and experienced workers will, on average, be more productive than new or dissatisfied ones. Due to motivated and satisfied workforce, you might experience productivity increases, a drop in defect rates and an improvement in the quality of the products. Rather than being a cost, moving towards a living wage can be an investment in a better and more productive company.

Changing the behavior of supply chain partners and increasing wages is not always easy. It will be easier, if your leverage is high. You can increase your leverage in the following ways:

Include Living Wages In The Strategic And Long-Term Partnerships Within Your Supply Chain

Improvement of wages needs cooperation and good communication with the suppliers. It is harder if you work with suppliers only through short-term relationships. Your ambition to work towards a living wage will be taken more seriously by a supplier with whom you have a longer term and strategic relationship. Stability in the supply chain can therefore be seen as a precondition to work on living wages. Stable and long-term relationships will increase your leverage on wages and any other ”social innovations” you wish to contribute to. (Long-term trade relationships is mentioned under the Fair Trade principles exactly for this reason; it enhances trust and communications and is beneficial for both the buyer and the producer.)

Join A Multi-stakeholder Or Industry Initiative

Working in collaboration with others makes you stronger and gives you more leverage. You can consider joining an initiative which is making an effort to improve wages. Examples of multi-stakeholder initiatives that include a living wage in their work are all the Fair Trade organizations, such as World Fair Trade Organization, Fair Trade International, Fair Wear Foundation and coalitions such as the Ethical Trading Initiative and Social Accountability International. Both large and small companies have joined such initiatives. Members of these initiatives can learn from each others and use the same tools & standards to educate and support their supply chain.

Collaborate With Local NGOs, Unions And Governmental Bodies

Another form of collaboration which will help you increase your leverage is working with local actors such as NGOs, labor unions and government to exchange information and to have an open dialogue. Buyers who are aware of wage issues in the countries they source from are increasingly reaching out to local institutions, who are often involved in influencing the wage negotiations in such countries. The support of buyers and suppliers in dialogue and cooperation can make a positive difference and help in defining a locally fit wage level and implement the increases.

Best Practices: Rosy Blue

Source/modified from: Paying A Living Wage -a guide for companies, Netherlands Enterprise Agency 2016

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