This article is republished from The Conversation under a Creative Commons license. Read the original article.
It can be hard to see a way out of the current cost of living crisis. Prices continue to rise, and there are fears that if nothing changes, many families will face serious financial hardship.
The effects of this would be devastating. Poverty causes premature death, malnutrition, disease and exhaustion. In the face of this bleak outlook, there is an urgent need for effective leadership to effect change – but not just from governments. Businesses can also play an important role.
One of the most important things any company can do to reduce poverty is to pay its employees a living wage. Our new report details how a living wage benefits not only employees and workers, but also employers and society at large.
Having a living wage helps break cycles of poverty by ensuring that the wage is sufficient to cover household necessities as well as occasional emergencies or unexpected expenses.
The experts interviewed reported that having a living wage can reduce stress levels and the sometimes excessive work hours needed to make ends meet. This, in turn, means fewer sick days and an increase in the employee’s overall well-being.
From a business perspective, this can result in lower employee turnover, lower recruitment and training costs. Productivity can increase, and there are even early signs that higher entry-level wages may be linked to higher earnings.
We also discovered that as living wage commitments become more common, the benefits reach society further. Increases in wages stimulate spending in the local economy, while reductions in poverty and inequality can lead to greater social cohesion.
In summary, our report (from Business Fights Poverty, Cambridge Institute for Leadership and Sustainable Transformation) supports the growing evidence that a living wage offers multiple benefits—beyond those experienced by individual workers.
This should give companies the confidence to see wages not just as a net cost, but as a positive investment. After all, a company can only be as flexible as the workers it hires.
The broader impact on society is also evident. We found that a living wage has the potential not only to help tackle poverty, but also to address many of the United Nations Sustainable Development Goals. For example, one of the goals includes “decent work for all”, and fair income is a key component of decent work. Tackling poverty can also improve access to housing, food and health.
Fortunately, being a salaried business owner has become a new sign of business leadership, which is appreciated by investors and consumers alike.
In the UK for example, IKEA, Everton Football Club and the National Building Society are just three of more than 10,000 employers who have committed to paying what the Living Wage Foundation describes as a “real living wage”. In practice this means paying as little as £9.90 per hour (£11.05 in London). Similar campaigns are in place in other countries, including New Zealand and Canada.
raise bar
Some companies go even further, by extending living wage obligations to their suppliers. In 2021, Unilever announced plans to work towards a living wage for people who provide goods and services to the company in areas such as logistics and packaging. To achieve this, Unilever partners with suppliers to comply with and report paying their workers at least a living wage.
Our report, which combined an extensive analysis of previous research and numerous interviews, suggests that others should join them.
Dr Annabelle Beals, who co-authored the report with us, said: “Given the sheer scale of rising poverty, a shift to a living wage economy is urgent and we need more companies to play their part. The decision to pay a living wage offers companies a lot in return for their investment in terms of performance and flexibility and stability.”
To move things forward, investors and CEOs must now feel confident that paying a living wage is a reasonable business decision. Meanwhile, governments can increase the statutory minimum wage to reach living wage levels.
Consumers can also push for progress through the power of their spending decisions and the companies they support. Businesses large and small have an important role to play in combating the drivers of poverty – and they can be more economically successful as a result.
Anna Barford, Prince of Wales Fellow in Global Sustainability, University of Cambridge and Jane Nelson, Director of the Corporate Responsibility Initiative, Harvard Kennedy School.
Image credit: Banner
