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Living wages have never been more critical as the cost-of-living soars globally

Published: 22 Nov 2022
Author: Katherine Chapman, Director, Living Wage Foundation
Type: Insight

As the world faces multiple global crises, soaring levels of inequality are compounded by the consequences of the COVID-19 pandemic and the war in Ukraine, further exposing the cracks in an already broken system and driving up the cost of living everywhere.  

Today, being employed offers no guarantee of financial safety. Living wages are wage rates calculated based on what it costs to live and differ from arbitrary government minimums which tend not to provide a decent standard of living. According to the International Labour Organization, over 630 million working people – almost one in five of the world’s employed population – do not earn enough to lift themselves and their families out of poverty. We believe, alongside the Business Commission to Tackle Inequality (BCTI), that a fundamental shift in our approach to tackling inequality is desperately needed; a shift towards working with other businesses who want to be a force for good and implement living wages across their global operations, and use their platform to encourage other businesses to join their efforts to ensure workers everywhere can afford to meet their everyday needs. 

In the UK, businesses such as IKEA and Burberry are already playing a leading role. The Living Wage Foundation sits at the heart of an independent movement of over 11,000 employers who have collectively placed over £2 billion back into the pockets of low-paid workers since 2011. We recognize their leadership and commitment always to pay a real Living Wage, calculated annually to reflect up-to-date living costs, through our Living Wage Employer accreditation. Crucially, accreditation requires employers also to pay third-party contractors like cleaners, caterers and security guards a real Living Wage, which is where the Living Wage campaign began in the UK over 20 years ago. Given the current context, the leadership shown by these employers has never been more critical for low-paid workers and their families, who feel the pressures of rising costs much sharper than others. 

The cost-of-living crisis is piling pressure on everyone. Record levels of inflation, which the United Nations expects will reach 6.7% globally this year, are eroding people's living standards, and most acutely, those on low pay. Our recent polling showed 78% of low-paid workers in the UK say the cost-of-living crisis is the worst financial period they have ever faced. Globally, an IPSOS poll carried out for the World Economic Forum in May found that one in four people in a sample of 11 high-income countries were struggling financially. In this context, paying a wage that reflects the cost of living becomes more important than ever in tackling more comprehensive poverty and inequality.   

The introductory report from BCTI demonstrates the scale of inequality and identifies it as a systemic risk. It highlights shocking figures; for example, the top 10% of earners now receive 52% of global pay, compared to the lowest-paid half of workers who receive only 8.5%. This stark inequality erodes social cohesion, undermines trust in institutions, fuels civil conflict and political polarisation and prevents collective action from tackling complex challenges. The report makes a strong case for why business action is needed as a force for good.  

Living wages are crucial to tackling inequality in numerous ways. They reduce in-work poverty by enabling workers to afford an acceptable standard of living, and in doing so, can reduce pay disparities between low-paid workers and higher earners. They offer the potential to reduce wider structural gender, racial, age and disability inequalities, as women, minority ethnic, and younger and disabled workers tend to be over-represented in low-paid jobs. Regional disparities offer an additional area that can be addressed by paying a living wage. On top of this, living wages can address the secondary inequalities arising from income differences. For instance, the Health Foundation’s report, ‘Health Equity in England: The Marmot Review 10 Years On’ demonstrates in multiple ways the worsening of health for those on low incomes and insecure work, such as increased anxiety caused by insecure working practices. They offer an essential route to achieving eight of the UN’s Sustainable Development Goals: no poverty, zero hunger, good health and well-being, quality education, clean water and sanitation, gender equality, decent work and economic growth and reduced inequalities.  

But paying a real Living Wage isn’t just good for workers. Cardiff Business School’s survey of accredited Living Wage Employers found that over 90 percent reported that paying a Living Wage has benefitted their business. Benefits included increased retention rates, improved reputation, more motivated staff and better employee-employer relations. Similarly, a recent report by Business Fights Poverty found living wages can: enhance business performance in core operations; strengthen value chain stability, performance and resilience; and help create a supportive and stable operating environment. The evidence is clear: real Living Wages are good for business. That’s why we have seen record growth in the movement for a real Living Wage even during the toughest times, with 5,500 more employers accrediting since March 2020. 

Beyond individual businesses, wider adoption of the real Living Wage can benefit the economy. In the UK, Smith Institute research found that if just 25 percent of all low-paid jobs were uprated to the real Living Wage, the economy would benefit from a £1.7 billion boost. Globally, closing the living wage gap could generate an additional USD $4.56 trillion yearly through increased productivity and spending.  

To best tackle poverty and inequality and increase business sustainability, we encourage employers to pay a real Living Wage where credible benchmarks exist. In the UK, there is a consensus behind the agreed Living Wage rate based on a robust and transparent methodology overseen by the independent Living Wage Commission. National accreditation schemes like ours in the UK also exist in the US, Canada (Ontario and British Columbia) and New Zealand. Global initiatives are also coming together through our Living Wage Community of Practice to develop a holistic approach to providing Living Wages across the entire value chain. This will help us reach all workers within an employer’s sphere of influence, and includes focus on investors, retailers, and consumers, as well as workers at the farther end of global supply chains. In recent times, it has been encouraging to see a growing number of multinational employers like Unilever make ambitious Living Wage commitments for the entirety of their global workforce. We would like to see many more make that pledge to pay a real Living Wage across global operations for directly employed and contracted staff by 2030.

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