Corporate profits

Why living wages could be a boon to 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 become clearer, so does the understanding that the cumulative effects of low wages are felt up the supply chain, according to a coalition report Businesses fight poverty. While the current model allows capital, and therefore corporate profits, to grow exponentially, doing so at the expense of the working poor is unsustainable. Corporate responsibility demands change, not just for the sake of preserving long-term profits, but for the sake of stability, risk mitigation and even brand image.

Half of the world’s population controls less wealth than 2,750 individual billionaires. Of course, it’s not wealth at all when nearly 4 billion people share 2% of the planet’s financial resources. In many heavily exporting (i.e., supply-side) countries, workers earn less than USD 1.90 in purchasing power parity per day. There are currently 630 million people classified as working poor, with working poverty rates in major exporting countries reaching 67%.

Low wages have a significant impact on health outcomes as well as family stability and access to resources, which in turn affects labor productivity and stability, while higher wages are linked to productivity improvement and attendance. Therefore, paying a living wage contributes greatly to a more stable workforce.

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

Written in part to encourage business leaders to stop seeing work 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 greater its social problems. tend to be large. And that’s just not good for business or long-term corporate profits, which is why Business Fights Poverty hopes to help shift the conversation from one where living wages are seen as “nice to have”. to a conversation where they are “essential to good business”. practices and respect for human rights.

This means extending salary expectations beyond immediate activity to supply and holding partners accountable for paying living wages as well. While a setback is to be expected, raising wages to a livable level has the end result of boosting local economies, which in turn makes them more stable. This is imperative given that wages and working conditions directly correlate with supplier reliability – 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 companies that choose corporate responsibility across the value chain to outperform those that continue to insist on paying the bare minimum. Of course, corporate profits and supply chain stability aren’t the only things that matter to investors. As Gen Z joins the ranks of personal investors, they do so with almost unanimous agreement that companies have both social and environmental responsibilities. And while they’re still learning to figure out which corporate citizens deserve their support, Gen Z are already known to aim to put their money where their morals lie.

For all their branding, if companies really want to have a positive social impact, perhaps the best place to start would be with decent wages for every worker. After all, what is the point of a great mission statement if a fundamental opportunity to alleviate the societal problems caused by poverty and inequality is being missed? Now is the time for companies to step forward and implement living wage policies at scale to be part of the long-term solutions needed to eradicate these societal problems around the world.

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