Ensuring a Living Wage is an Essential Aspect of Decent Work
Working poverty is a reality worldwide. For many workers, a job does not provide a way out of poverty for them and their families. The cost-of-living crisis has thrown into stark relief the vulnerability of low-paid workers and made clear the consequences of economic fragility on human capital development, making the provision of living wages all the more urgent. While a great deal of progress has been made to ensure living wages for all workers, more needs to be done to ensure we leave no one behind.
The UN Global Compact encourages companies to promote and provide a living wage as an essential aspect of decent work to ensure all workers, families and communities can live in dignity.
There is now a tripartite (between Governments, Employers’ and Workers’ organizations) agreement on the concept of a living wage: “A living wage is the wage level that is necessary to afford a decent standard of living for workers and their families, taking into account the country circumstances and calculated for the work performed during normal hours. It should be calculated in accordance with the International Labour Organization's (ILO) principles of estimating the living wage, and to be achieved through the wage-setting process in line with ILO principles on wage setting."
Governments have an important role to play in supporting wage-fixing mechanisms at a sectoral level. More than 170 countries have one or more minimum wages set through legislation or binding collective agreements. In many countries, however, companies must go beyond existing wage legislation as minimum wages do not always allow for a decent living. By going beyond legal compliance, businesses can ensure that all their employees have the income to support their needs and those of their dependents, raising standards of health and well-being.
As part of the corporate responsibility to protect and respect human rights outlined in the UN Guiding Principles on Business and Human Rights (UNGPs), working poverty caused by low wages in the workplace and supply chains should be reflected in the human rights due diligence approaches businesses conduct.
There is an increasing pressure on Governments and companies to address low wages and take action to ensure a living wage for all workers:
- In 2023, the UN Global Compact launched the Forward Faster initiative to take action on living wage and accelerate progress across all 17 Sustainable Development Goals.
- In 2020, the European Commission launched a new Directive on Adequate Minimum Wages.
- Companies subject to the European Union Corporate Sustainability Reporting Directive (CSRD), in force since 5 January 2023, and the related European Sustainability Reporting Standards (ESRS), will have to report on how they intend to ensure the payment of “adequate wages'' to their own workforce and to workers in their value chain. According to the ESRS, the benchmark defining “adequate wages” for the geographic area outside the European Economic Area includes references to living wage initiatives.
- In 2021, various industry platforms, such as UN Global Compact, Business for Inclusive Growth and Aim Progress published statements in support of living wage and living income economies.
- In 2022, the UN Global Compact partnered with IDH to launch the Think Lab on Living Wage which concluded in 2023.
- In May 2024 the Council of the European Union adopted the Corporate Sustainability Due Diligence Directive (CSDDD). The aim of this Directive is to foster sustainable and responsible corporate behaviour in companies’ operations and across their global value chains. The new rules will ensure that companies in scope identify and address adverse human rights and environmental impacts of their actions inside and outside Europe, including to prevent violations on living wages.
- The German, Dutch and Belgian Governments signed a joint declaration in January 2021 to promote living incomes and wages.
- Investors are calling for action on living wages: including the Dow Jones Sustainability Index, the JSE Sustainability Disclosure Guidance, and the PLWF Alliance.
A growing number of companies are committing to pay a living wage to their employees, and some are committing to work with their suppliers to achieve living wages in their supply chains, especially through the Forward Faster living wage targets. Change starts within the business, and firms seeking to promote living wages in supply chains need to have their own house in order. Companies can leverage their experience of achieving their commitment of paying all their direct employees — regardless of employment status — a living wage. Efforts on both fronts — ensuring a living wage for a company’s own workforce and efforts to achieve a living wage for all workers in their supply chain — can go hand-in-hand.
