Living Wages Could be a Boon for Corporate Profits

The business case for a living wage is gaining traction in the corporate world. As the social and economic benefits of higher pay are becoming clearer, so is the understanding that the compounding effects of low wages are felt up the supply chain, according to a report from the coalition Business Fights Poverty. While the present model allows capital, and thereby corporate profits, to grow exponentially, doing so at the cost of the working poor is not sustainable. Corporate responsibility demands change, not just for the purpose of long-term profit preservation, but for the sake of stability, risk mitigation and even branding.

Half of the world’s population controls less wealth than 2,750 individual billionaires. Of course, it isn’t wealth at all when nearly 4 billion people are splitting 2 percent of the planet’s financial resources. In many export-heavy countries (i.e. the supply side), workers are earning less than US$1.90 in purchasing power parity per day. There are currently 630 million people classified as working poor, with working poverty rates in the main exporting countries topping out at 67 percent.

Low wages have a significant impact on health outcomes as well as familial stability and access to resources, which in turn effects productivity and stability in the workforce, while higher wages are linked to improved productivity and attendance. Therefore, paying a living wage goes a long way toward a more stable workforce. 

According to Richard Anker, as quoted in the Case for Living Wages report, the logic for living wages is a succinct one: "The business case stems from the need for the sustainability of the entire economic system.”

Written in part to encourage corporate leadership to stop thinking of labor as a cost and reframe it as an investment, the report points out that the greater the income inequality in a country or region, the larger its social problems tend to be. And that’s simply not good for businesses nor corporate profits in the long run, which is why Business Fights Poverty is hoping to help shift the conversation from one where living wages are considered “nice to have” to one where they are “essential to good business practices and upholding human rights.”

That means extending wage expectations beyond the immediate business to the supply end and holding partners accountable for paying living wages as well. While pushback is to be expected, raising wages to a livable level has the end result of stimulating local economies, which in turn makes them more stable.  That’s imperative considering that wages and working conditions correlate directly with supplier dependability – and, of course, corporate profits.

Investors are likely to perceive increased stability in the supply chain as lower-risk, and therefore invest accordingly. This presents a unique opportunity for those businesses choosing corporate responsibility down the full length of the value chain to outcompete those who continue to insist on paying the bare minimum. Corporate profits and supply chain stability aren’t the only thing that matters to investors, of course. As Gen Z joins the personal investor ranks, they’re doing so with near unanimous agreement that corporations have both social and environmental responsibility. And while they’re still learning to determine which corporate citizens are worthy of their support, Gen Z is already known for aiming to put their money where their morals are.

For all their branding, if businesses truly want to have a positive social impact, perhaps the best place to start would be with living wages for every worker. After all, what is the point of a grand mission statement if a basic opportunity to alleviate the societal problems caused by poverty and inequality is missed? Right now is an opportune time for businesses to get ahead of the curve and implement full-scale living wage policies in order to become part of the long-term solutions needed to eradicate these societal problems worldwide.

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