Why the moral case for the living wage is not enough - Dr Tom Pegram

Many companies continue to see higher wages as a cost rather than a business benefit that can improve production and quality. Confidence among supporters of the living wage that a breakthrough is about to be made has never been higher. A number of major companies, such as John Lewis and Marks & Spencer, have now committed to introducing mandatory reporting on a range of social metrics across their supply chains, including a living wage. Others are considering adopting these measures.

The case for companies to pay a living wage is driven by a variety of factors. Reputational risks and pressures on companies to demonstrate social responsibility are matched by growing evidence that paying a living wage can contribute to higher production rates and better product quality.
Even though there are compelling ethical and business case arguments to pay a living wage, campaigners for this face formidable obstacles. Extreme cost pressures on companies in key sectors such as retail and electronics mean that supply chain costs will continue to be squeezed, with direct implications for wages. The complexity of modern supply chains make it difficult for companies, even those with comprehensive monitoring and auditing processes, to know how much workers are actually being paid. This problem is compounded by weaknesses in local government capacity, in particular in developing countries, often exacerbated by the desire of developing countries to attract foreign direct investment.
The debate over whether responsibility for a living wage should lie with governments, companies or investors is both heated and polarised. While this debate is important, the risk is that we end up with division and deadlock rather than meaningful action. We see four areas where we could usefully make progress.

Identify quick wins

First, we need to revisit the business case. It is clear that simply making a moral case (or "advocating at" companies and investors) is not enough. It is necessary to properly understand the business context, with the aim of identifying areas where some quick wins may be achieved. Paradoxically, companies may find it easier to start by introducing a living wage into their operations in developed countries, where relatively few employees fall below this level. While this might be a modest contribution in the wider context, it offers a bridgehead of principle from which progress can be made.

Make use of what you have

Second, wherever practicable, we should seek to harness the many, rather than focus on the few (whether the leaders or the laggards). One potential point of departure is to look at the governance mechanisms and processes that already exist, and see how they may be used to advance the living wage agenda. For example, not for profit organisation, Sedex, currently caters to 27,500 corporate members who voluntarily share ethical supply chain data. Sedex could scale up its role as information broker; by providing detailed information on the wages being paid by suppliers, Sedex could enable its members to engage with suppliers on this issue.

Champion your successes

Third, the art of the possible must be demonstrated and recognised. Given that many companies continue to see higher wages as increasing their costs rather than providing real business benefits, it is important to highlight the business benefits that accrue to those companies that have committed to paying a living wage. It is particularly important that NGOs and civil organisations are prepared to recognise and praise those companies that do take action, as enhanced reputation is an integral part of the corporate business case for action.

Raising awareness

Fourth, there is a desperate need to build consensus on the need for a living wage. It is striking that the living wage has been missing from some of the key discussions about business and human rights. Where wages have been discussed, the focus has been on (legally defined) minimum wage, which often falls far short of Oxfam's definition of a living wage as one which "for a full-time working week without overtime, would allow a family to meet its basic needs - including shelter, clothing, and nutrition - and allow an amount for discretionary spending".

It will be difficult to make progress on the living wage, but current developments are encouraging and the actions suggested here are real steps towards achieving a solution.

Dr Tom Pegram is deputy director of UCL Institute of Global Governance and lecturer in global governance at UCL School of Public Policy. Dr Rory Sullivan is strategic advisor to Ethix and a senior research fellow at the University of Leeds.

Related links:

• The Guardian Sustainable Business