Working poverty is a reality worldwide. For many workers, a job does not provide a way out of poverty for their family. The COVID-19 pandemic has shown in stark relief the vulnerability of low-paid workers and made plain the consequences of economic vulnerability on human capital development. As this report highlights, this deepening of inequality presents an urgent threat to communities and economies.

A growing number of companies have expressly committed to achieving living wages in their supply chains, and the payment of a living wage is a membership requirement of a range of accountability organizations and initiatives in which businesses participate.

There is no universally agreed definition of a living wage as a concept and there is no universally accepted amount that defines such remuneration. But almost all living wage descriptions and definitions incorporate the idea that a living wage is a remuneration received for a standard workweek by a worker in a particular place sufficient to afford a decent standard of living for the worker and their dependents.¹

To this end, the United Nations Global Compact is encouraging companies to promote and provide a living wage as an essential aspect of decent work to ensure workers, families and communities can live in dignity. These commitments showcase the present impetus behind the agenda to improve wages in supply chains and are an important foundation to build on.

Improving wages for the lowest-paid workers in the supply chain has long been acknowledged as a pressing challenge for responsible multinational businesses to tackle. This report finds a rapid evolution in both commitment and action by business. A renewed clarity of focus on the reality of working poverty has seen a range of companies move beyond previous, circular debate, and proceed to concrete action. The past decade has seen a transformation in companies’ approach to a living wage, and in particular, overcoming two crucial obstacles.

First, the lack of consensus around the definition of a living wage: as the report points out, there is broad consensus around what constitutes a living wage, namely a wage which enables workers and their families to meet their basic needs. This objective is also central to the ILO’s call for an adequate minimum wage, further outlined in Convention no. 131 on Minimum Wage Fixing, which calls for minimum wage levels that take into account the needs of workers and their families as well as economic factors. Increasingly, credible information is publicly available on wages which would enable workers and their families to meet basic costs of living.²

Second, the complexity involved in addressing poverty wages in supply chains: wages are indeed determined by a range of factors, many of which are outside the control of any single enterprise. But complexity is not always complication, and recognition of complexity must not result in paralysis. The initial steps laid out here are achievable in any business, and many of the fundamental questions are straightforward, namely: do the prices my business pays to a supplier make it impossible for that supplier to pay a living wage to their employees? And beyond the price paid, what are the other factors to be considered in procurement decisions? Are my procurement colleagues aware that decisions they make can have a direct effect on the well-being of workers in supply chains?

There are expanding opportunities for companies to take meaningful action. Drawing from the lessons of activities to promote living wages in garment and agriculture supply chains, a number of tools and resources are now available to businesses to diagnose wage gaps, engage suppliers, and support activities to improve pay systems and foster social dialogue. Pioneering initiatives that have made these possible include the Action, Collaboration, Transformation (ACT) initiative, Fair Labor Association, Fair Wage Network, Fair Wear Foundation and IDH (the Sustainable Trade Initiative). This guidance aims to aggregate and complement these resources.

This report is not a blueprint for living wages in global supply chains. There are marked differences in the dynamics and structures between value chains and between labour markets. Rather, this report aims to draw out a strategic logic to support companies’ decision making, to devise their own realistic, integrated strategy on tackling low pay in supply chains and chart their way forward with a plan of concrete implementation actions that enable their commitments.

Change starts within the business, and firms seeking to promote decent wages in supply chains need to have their own house in order. Companies can leverage their own 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 your own workforce and efforts to achieve a living wage for all workers in your supply chain, can go hand-in-hand. Improving wages in supply chains starts by identifying which levers are within the control of the business and making initial efforts on these. This will include:

Commitment to achieving improved wages in the supply chain for all workers as part of the companies’ business strategy: this will require a strong mandate from senior leadership.

Collecting data to assess the gap between current basic pay and living wage in supplier workplaces.

Developing an implementation plan with clear objectives, based on assessment of the scale of the gap between current wages and living wage, and an assessment of priority supplier markets to start working with (such as strategic suppliers in lowest-wage regions, or suppliers who are best positioned to achieve a living wage, creating demonstration effect for future engagement with other suppliers).

Consulting and collaborating with internal stakeholders (including buyers, legal, accounts, quality control) and external stakeholders, including workers’ representative organizations.

Engaging and supporting suppliers.

Adjusting purchasing practices and unit prices paid to enable payment of fair wages by suppliers.

Measuring and monitoring progress using a mix of quantitative and progress achievement metrics.

Fundamental here is the integration of living wage considerations into commercial practices. Concretely this means removing the downward pressure on wages that may be exerted by pricing and other purchasing practices. Wages cannot be the adjustment variable of commercial terms between buyer and supplier.

Beyond individual company efforts, this report identifies the need for collaboration. There is an emerging range of opportunities for businesses to engage in sector-wide collaboration with suppliers, trade unions, governments, NGOs and employers’ organizations. Progress requires collective work to influence change at scale, across entire industries. Collaborative solutions are required to aggregate buying power, to remove blockers to meaningful social dialogue and collectively negotiated wages, and to sustain the conditions for continued improvement of wages in global supply chains.

Key among these conditions is the existence of effective freedom of association and collective bargaining alongside transparent mechanisms for adequate national minimum wage levels set and revised by tripartite negotiation. The importance of adopting a multi-stakeholder approach needs to be underlined as all stakeholders play a relevant role in enabling the achievement of a living wage for all workers.

Working poverty in supply chains is at odds not only with companies’ values and those of their employees, but also with the potential to secure resilient supply chains and to grow consumer markets in emerging and developing economies. Wage income is pivotal to the achievement of Sustainable Development Goals (SDGs) 1 and 8 — No Poverty and Decent Work and Economic Growth — alongside a broader range of sustainable development objectives, including gender equality, the elimination of child labour and safe working conditions. Further, as more companies are publicly committing to achieving living wages in supply chains, and investors and stakeholders increasingly pay attention to the issue, there is a need to safeguard both intangible and tangible brand assets.

Advancing this agenda further requires real commitment from companies to assume their responsibilities and deploy their influence within value chains to ensure workers everywhere can realistically expect that their hard work will be rewarded sufficiently to support themselves and their families to a standard that is universally considered decent. This is, after all, one of their fundamental human rights.

Businesses increasingly recognize their critical role in promoting living wages in supply chains. Working poverty in supply chains is at odds not only with companies’ values and those of their employees, but also with the potential to secure resilient supply chains and to grow consumer markets. Wage income is pivotal to the achievement of many other sustainability and development objectives, including gender equality and the elimination of child labour (see graphic in section 2.2). Further, as more companies are publicly committing to achieving living wages in supply chains, and investors and stakeholders increasingly pay attention to the issue, there is a need to safeguard both intangible and tangible brand assets.

While ensuring payment of living wages in supply chains is often seen as a cost, it can constitute an important investment. Beyond fulfilling a duty of care, ensuring the payment of decent wages to supply chain workers translates into an investment in human capital that can bring a range of returns: from direct returns to suppliers in terms of reduced absenteeism, increased retention and motivation, through to indirect returns for buyers in terms of supply chain resilience and quality, as well as risk management.

An “adequate standard of living” and “just and favourable conditions of work” are universally recognized human rights. The Universal Declaration of Human Rights (Article 25) and the International Covenant on Economic, Social and Cultural Rights (Article 7) together make clear the inextricable link between employment and an adequate standard of living, and present business with an opportunity to step up to respect these rights through, for example, the provision of a living wage. The UN Guiding Principles on Business and Human Rights (UNGPs) outline the corporate responsibility to respect human rights, calling on business to both avoid infringing on the human rights of others and address adverse human rights impacts with which they are involved. The UNGPs state that businesses should conduct ongoing human rights due diligence to identify, prevent, mitigate and account for how they address their adverse human rights impacts. Acting on wages where low pay is an identified risk or impact on the enjoyment of workers’ rights — including in their supply chains — as a result of a human rights due diligence process is one way business can align with the UNGPs. Furthermore, as part of their responsibility to conduct human rights due diligence, companies should use their leverage and take steps in their supply chain to promote living wages where low pay is an identified risk.

Shortfalls in state obligations to realize the rights to an adequate standard of living and just and favourable conditions of work present a salient risk for business. Working to improve wages evidently implies a critical role for state actors in establishing adequate minimum wages and providing a framework for social dialogue based on respect for internationally recognized rights of freedom of association and collective bargaining. However, according to the ILO’s latest Global Wage Report 2020/21, in many sourcing economies, minimum wages are inadequate, absent, infrequently revised or not effectively applied, and labour market governance fails to ensure a role for social dialogue. While 90% of ILO Member States have minimum wage policies in place, an estimated 327 million wage earners are paid at or below the applicable hourly minimum wage. This figure represents 19% of all wage earners and includes 152 million women. Further, only 54% of countries with minimum wages adjusted their minimum wages at least every two years.

Eradicating poverty in all its forms is an indispensable requirement for sustainable development. More than 700 million people worldwide still live in poverty.

Work is the key route to escape poverty. However, a job alone is not a guarantee of decent living conditions. The ILO reports that 8% of the world’s workers are classed as ‘working poor.’ The COVID-19 pandemic has brought the consequences of economic vulnerability into plainer view across the world.

Further, at a global level, the ‘labour share’ (the proportion of national income allocated to wages) has been in decline for three decades. Wage incomes for workers in global supply chains reflect a long-term global trend of increasing disparity, and a continuous decline in the wage share, even in emerging economies with rapid growth.

These trends appear to reflect a disconnect between productivity and wages. Constrained returns to labour and unequal income distribution have led to a growing phenomenon of working poverty.

For multinational companies, the significance of fostering sustainable and resilient supply chains is acute. This is reflected in the vocal support for the SDGs across much of the business community. Companies achieving living wages in their supply chains would directly advance Goals 1, 5, 8 and 10 and contribute materially to the achievement of several other Goals. Indeed, by committing to achieving living wages in supply chains, companies can reinforce and catalyse a much wider range of sustainable development and human rights commitments.

The root causes of labour risks such as child labour, forced labour and unsafe working conditions are often linked to poverty and vulnerable working arrangements.

Experience from a range of companies in agriculture, garments and other fast-moving consumer goods (FMCG) supply chains suggests that there are several broad business benefits which can result from improvements to wages for lowest-paid earners in supply chains. Fundamentally, all parties stand to gain from a situation where workers are more economically secure and less distressed by financial concerns, the need to work excessive overtime or hold down a second job.

There is firm evidence of the positive business effects of living wage payment in direct workforces. For example, in 2017, Cardiff Business School found that 93% of UK Living Wage Employers reported that they had experienced some form of benefits from accreditation with the UK Living Wage Foundation. These were mostly related to reputational effects, though many firms also reported a greater ability to recruit and retain workers, lower absenteeism and higher productivity. Similar benefits were found by Middlesex University Business School and University of Liverpool Management School when looking specifically at small and medium-sized enterprises (SMEs) in the UK, and in large employer case studies conducted by the University of Strathclyde.

There are similar, but distinct, business rationales for buyers and suppliers to address poverty wages in supply chains (see table below). For buyers, demonstrating commitment and progress on supply chain wages may be crucial either to membership requirements of initiatives and platforms or to public sustainability commitments: this is about demonstrating real action on a pressing agenda. Beyond this, there are significant reputational, regulatory and commercial drivers from investors, consumers and regulators. Returns for buyers can accrue directly — in terms of driving quality supply, effective risk management and reputational gains — and indirectly — through promoting and enacting necessary process and systems changes which improve business outcomes: for instance, consolidating and shortening supply chains may be necessary to living wage efforts but can bring broader return in terms of trading relationships and resilience of supply.

These returns are increasingly recognized as real by global investors. For instance, Platform Living Wage Financials (PLWF) brings together a group of institutional investors with combined assets of €725bn who encourage and monitor investee companies’ actions to address the non-payment of a living wage in global supply chains. Further, the Dow Jones Sustainability Index (DJSI) has recently introduced new requirements relating to the living wage. This signals an emerging need for businesses to understand the extent of low pay in their supply chains and to be prepared to show steps taken to close the gap.

For suppliers, there are several ‘broad business benefits’ that can result from improvements to wages for lowest-paid earners in the workforce, and there can be significant organizational gains derived from moving to a more strategic people management approach. Specific areas of positive return can include:³

Reduced staff turnover and absenteeism, resulting in reduced recruitment, and developing a more stable and skilled workforce. Attracting and retaining workers is a key factor in competitive advantage. Better wages can contribute to higher worker satisfaction, higher retention rates of skilled workers, lower recruitment and absenteeism costs, better quality management and a safer workplace.

Reduced training costs, which occurs when worker retention is high, there are fewer induction courses and basic up-skilling courses required and workers with higher skills can give on-the-job support to newer ones.

Output improvements in productivity and quality, reflecting improved worker motivation and engagement; also, workers who are more economically secure are less distracted by financial concerns or the need to work excessive overtime or hold down a second job. Addressing workers’ wage concerns can also minimize disruption caused by industrial action driven by low pay.

Access to market and reputation, spawning more positive association with customers and workers (including future employees) and ensuring access to higher-value markets and buyers and meet the demands of other customers, investors and the community at large. (Improved wages also support the economic development of the community around the workplace.)

Further, these benefits are amplified when taking an approach to wages which reinforces the development of improved human resource management systems and forms of social dialogue and worker engagement, which themselves bring gains for workforce and enterprise alike. For instance, addressing wages holistically can enable supplier companies to better control excessive overtime without negatively impacting workers’ financial well-being and employee turnover.

A significant number of companies have already committed to paying a living wage to their direct workforce. A commitment to ensuring that direct employees receive a wage that ensures them a decent standard of living is both a logical and ethical prerequisite to addressing supply chain wages. There is also real scope to share the practical experience and solutions developed in ‘getting your own house in order’ when embarking on efforts to address poverty wages in supply chains. This implies a key role for a company’s own Human Resources and Reward teams in translating supply chain commitments into action.

A growing number of companies are committed to enabling living wages to be paid within their supply chain. There is already dynamic momentum behind the idea to improve wages in global production systems. A sample of companies that have publicly expressed their commitment to achieving living wages in global supply chains is included below. Increasingly, these commitments are backed by time-bound targets.

The need for companies to consider living wages as a crucial aspect of decent work has gained momentum in recent years with a number of organizations and companies taking concrete actions to that effect. There are a number of lessons and experiences to draw upon, notably from the garments and agricultural value chains. What we know now is that a number of factors combine to keep wages low and individual initiatives are unlikely to make significant progress. In particular:

Companies buying from supply chains need to coordinate between themselves and collaborate/partner with industry peers and other buyers, suppliers, governments, workers or their representatives and other relevant organizations, including in discussions related to setting adequate national minimum wages.

Promoting and facilitating social dialogue is key for companies to understand the root causes of low wages and effectively ensure workers are paid a living wage.

Many global supply chains rely on a business model which benefits from maintaining low wages and inadequate regulation and enforcement. This is partly reflected in the dynamics of trade and manufacturing during a relatively rapid transition to global sourcing over the past four decades. Asymmetries of power in global supply chains and information mean that, in reality, some actors are functionally dependent on others. Suppliers typically have fewer options, and less decision-making flexibility, than their buyers. (The exception here is, potentially, the electronics segment, which has seen the aggregation of supplier control.) Workers remain largely absent from decision-making.

Multinational buyers, therefore, have a key role to play in unlocking this situation. The actions and decisions of multinational buyers can have a significant impact on the working conditions, and broader livelihoods, of supply chain workers. Frequently, the wages paid to supplier workforces — seen as a more flexible element of production cost — serve to absorb commercial pressures coming down the supply chain.

Prices paid to suppliers must be considered a central lever for achieving living wages in global supply chains. A sustainable improvement to supply chain wages requires that the means to pay for it are embedded within commercial agreements. Buyers will in many cases need to be prepared to pay more. While gains in efficiency and value can be achieved through supporting suppliers to improve productivity through technology and skills development, it is neither realistic nor desirable to expect all the gains to come from productivity enhancements. Suppliers and international workers’ rights advocates alike expect multinational buyers to bear some of the cost of paying a living wage.

And the structure of many global supply chains means that addressing the root causes also requires coordination between buyers. Complex, disparate supply networks with multiple intermediaries and multiple companies purchasing from a single supplier logically, and mathematically, require a high degree of buyer coordination to address wages.

Experience to date has illuminated the need to consider the practicalities of implementing living wage commitments, including the importance of social dialogue at enterprise and sectoral level, and the need for coordinated efforts which can increase ‘reach’ towards major blockages including national minimum wage setting. Living wage benchmarks have been important in raising awareness of living wage gaps, and as a diagnostic in calculating the wage gap and identifying risks of low wages. Yet much of the real work lies in addressing root causes that give rise to low wages, including purchasing practices, poorly functioning national and sectoral minimum wage-setting and industrial relations systems, lack of (well-functioning) social dialogue between workers and employers, and supplier-level pay determination and HR management systems.

Understanding how to raise wages sustainably to a level that meets living costs requires an understanding not only of wage levels but of wage determination and wage systems. This view is reflected in the Fair Wage Network (FWN) approach which emphasises 12 dimensions of fair wages.

Many of the early examples of business-led efforts to improve supply chain wages were in garments and agricultural value chains, but key learnings from both can be applicable to all sectors. In recent years, there has been a rapid development of tools and approaches rooted in the lessons from these pioneering efforts. These include:

A proliferation of benchmarking tools and growing open-source knowledge base on wages and living cost estimates in production countries (Global Living Wage Coalition, Wage Indicator Foundation).

Multi-stakeholder initiatives working to consolidate processes to enable commercial buyers to support wage improvements (IDH, Rainforest Alliance).

Development of tools and approaches to integrating living wage considerations into purchasing practices and commercial negotiations (ACT, UN Global Compact, Fair Wear Foundation).

Agreement between global buyers and retailers and trade unions to transform the garment, textile and footwear industry and achieve living wages for workers through collective bargaining at industry level linked to purchasing practices (ACT).

The examples of leading initiatives to improve wages in supply chains have revealed new considerations that serve as important lessons for companies implementing living wages in supply chains.

Various organizations have developed living wage benchmarking tools and guidance to support companies to overcome some of the first technical hurdles concerning raising wages. The key trend is towards harmonization of approaches to working on wages, consolidating growing open-source knowledge bases on wages and living cost estimates in production countries and linking them to shared definitions, comparable data gathering tools and resources and linking these technical resources with common platforms where different companies can strategize on how to collectively achieve progress in supplier industries in which they have a shared interest.

There are a number of organizations that provide living wage data and resources for benchmarking across multiple countries, including the Global Living Wage Coalition, Fair Wage Network, Wage Indicator Foundation and Fair Wear Foundation.

Social dialogue and collective bargaining on wages are central to ensuring that pay is calibrated to the needs of both workers and supplier enterprises, is ‘owned’ by these actors and can be enforced. The framework of negotiation which is frequently lacking in wage-setting mechanisms is also vital for keeping wages current with inflation and changes in economic circumstances.

Collectively-agreed wages, alongside statutory minimum wages, are effectively enforceable. Enhancing suppliers' capacity to pay higher wages does not automatically result in higher payments to workers without robust mechanisms in place to ensure this. Collective agreements not only lock in wage increases; they can also reduce the costs of compliance and monitoring wage developments.

Ensuring workers are paid a living wage is a key component of a decent work agenda, and to achieve this, the structural causes of poverty wages need to be addressed.⁴

Social dialogue — both in the form of collective bargaining and tripartite social dialogue — lies at the heart of this process. Social dialogue enables enterprises to pay their workers a living wage while also driving the living wage agenda forward by ensuring that improved business performance effectively translates into higher wages.

For social dialogue to be effective, however, an enterprise must be built on a solid foundation of respect for the fundamental rights of freedom of association and the effective recognition of the right to collective bargaining. Together, these constitute enabling rights and essential building blocks for social dialogue and sound industrial relations.

Enabling the achievement of a living wage

In today’s global economy, the distribution of value along vast and complex supply chains is largely influenced by the pricing and purchasing practices of multinational buyers. New forms of cross-border social dialogue between multinational enterprises and global union federations as they negotiate global framework agreements (GFAs) offer a way to govern this issue. GFAs often result in the creation of monitoring committees that include multinational enterprises, local suppliers, global union federations and their affiliates. These committees function as platforms for conflict resolution and can be mobilized to address the potential tensions between existing purchasing policies of the enterprise on the one hand, and commitments on living wages and decent work on the other.

The COVID-19 crisis further illustrates this tension, with existing social dialogue contacts between local suppliers and trade unions originating as part of a GFA being used to address issues such as the cancelling and non-payment of international orders.

Social dialogue also creates trust. When workers trust their management, they are more likely to openly share information and knowledge on what exactly is happening on the work floor. This transparency gives businesses further opportunities to improve their performance, contributing to the business case for paying a living wage.

Trust also fosters cooperation. Workers will be more receptive to changes aimed at increasing productivity if they believe their concerns will be taken seriously and that they will also be able to enjoy the benefits of greater workplace productivity. Moreover, it is easier to find solutions and compromises to address economic shocks when all affected parties know and trust each other. Overall, the trust that results from social dialogue contributes to the stability necessary to foster productivity and competitiveness.

Businesses also stand to gain from social dialogue as collective voice prevents excessive staff turnover. Concerns and issues that otherwise would result in workers leaving the company can be put openly on the discussion table in order to find balanced solutions. In turn, a more stable workforce implies businesses can keep experienced and productive workers on board and avoid the cost of having to hire and retrain new workers.

Social dialogue can help enable the payment of a living wage to a greater number of workers through multi-employer collective bargaining agreements and tripartite social dialogue. By setting common wage floors, these processes can provide a level playing field, either for specific sectors or the entire economy. This would ensure companies do not have to compete on the basis of the lowest possible wages.

Driving the living wage agenda

Enhancing the capacity of businesses to close the living wage gap is a necessary step in ending poverty. At the same time, a robust mechanism to translate enhanced business performance into better wages for workers also needs to be in place. Social dialogue, with the freedom to organize and the right to bargain collectively as its key pillars, provides such a mechanism.

First, social dialogue allows workers and employers to identify a pathway towards a living wage together. All too often, the reality of global supply chains is one where the minimum wage still reflects deep poverty. Therefore huge gaps between these wages and a living wage persist.

These gaps, however, take time to bridge, which can result in conflicting expectations. Social dialogue can help by delivering a compromise based on gradual but continuous increases of future wage levels.

Second, wages in global supply chains often lag behind inflation and the rising cost of living. As time goes by, the value of wages is gradually but systematically eroded, and the risk of social turmoil increases as a result. Social dialogue can prevent this from happening as issues such as declining purchasing power and the need to correct for it are raised in discussions between representatives of workers, employers and governments.

Third, social dialogue also promotes and protects the effective enforcement of a living wage. This includes, but is not limited to, monitoring the implementation of wage levels agreed upon through a social dialogue process. The effective impact of a living wage on poverty and living conditions not only depends on the wage level, but also on issues such as the correct and timely payment of the wage, the number of working hours involved to secure a living wage, the predictability of working hours so that workers and their households have adequate financial security, and the link to non-wage benefits such as access to social security.

Monitoring and addressing all the aspects of ensuring a living wage requires having “eyes and ears on the ground.” A social dialogue process can empower workers to identify, raise and address the issues they and their fellow workers experience through their representative organizations. Engaging with these actors on the ground is essential in both a national and international context, as due diligence requires multinational enterprises to address any adverse impacts, including across global supply chains.

This content was provided by the Global Deal Support Unit.

A key lesson from existing initiatives is that the actions of individual companies can achieve greater impact if combined across an entire industry or value chain. Many of the challenges involved are structural in nature, and wages are commonly fixed at the national sectoral level. The most effective way to ‘unlock’ these pressures is to take an expressly sector-wide approach — acting across an entire supplier sector in a sourcing country, but also acting in coordination with peer buyers and national constituents. This approach can also serve to reduce supplier concerns relating to their competitiveness vis-a-vis sector, regional or international peers.

Targeted collaboration and coordination do not need to give rise to anti-trust concerns. While any collaborative efforts to achieve living wages in supply chains need to be carefully assessed for their effects and need to be designed with appropriate care and attention, recent legal opinions from the EU suggest that collaboration on sustainability objectives — and achieving a living wage in particular — does not necessarily constitute anti-competitive practice. Further, in some jurisdictions, acting in the public interest can serve as a strong legal defence. However, this is not universal and authoritative legal opinions may differ in some jurisdictions (notably the United States). Nevertheless, in the US and the EU, there is no legal precedent against cooperation to support better wages at the sector level. Legal advice to the Fair Wear Foundation has suggested that these forms of collaboration do not constitute a competition law compliance risk. The Competition Policy International initiative has also published advice for companies on understanding legal risks that apply to them.

There is also value in sharing lessons learned across sectors, building on the experiences from work on wages outside of traditional business networks. Platforms like the UN Global Compact are designed to facilitate this type of cross-sectoral collaboration.

Individual supplier ‘projects’ have tended to be heavily dependent on a particular buyer, or small group of buyers, and have limited sustainable impact in terms of duration and scope. However, some projects have been a rich source of learning about improving worker-management dialogue, working hours, management, gender impacts of wage disparity and developing more strategic HR management in supplier workplaces.

Companies can use positive examples of improved wages in an industry, or even within a single supplier, to help shift the narrative around improving wages and in so doing, legitimize discussions around improving wages. Reinforced by commitments by companies to contribute and mitigate risks for national industry actors, this can help shape decisions that affect the way business responds to competitive pressures, as well as utilizing economic and policy levers to catalyse an enabling environment for improved wage systems.

Wages reflect a range of factors from the creation and distribution of value within the value chain, local labour market dynamics and skills supply, as well as supplier cost competitiveness. As the determinants of low wages may be systemic or structural in nature, interventions to improve wages should aim to address low pay holistically and seek to link up potential areas for collaborative progress at all three levels: the global, the national and the (supplier) enterprise. In terms of possible actions and activities at each of these levels, this means:

Towards an integrated approach and a new role for companies

Wage issues in supply chains may be complex, but practical key steps for companies are not complicated. The starting point is to understand what wages look like in your supply chain, prioritize what your company can do directly, in collaboration with its suppliers, and what steps require engagement and coordination with peer companies and other stakeholders.

The results chain below shows a suite of company and stakeholder actions that, under the right circumstances, can precipitate positive effects in supporting sustainable wage growth.

Building blocks of effective strategies to improve wages in supply chains

This section provides foundational guidance on six key building blocks of an integrated strategy on improving wages within supply chains. The guidance is supported by recent best-in-class examples of how companies have worked to build a strategy to implement their living wage commitments.

Measuring the gap between effective wages paid in supply chains and living wage benchmarks is an important step for many retailers, companies and multi-stakeholder standards initiatives toward taking action on living wages in global supply chains. At its core, this exercise depends on a fair and careful comparison of two elements:

Data showing what workers are actually paid (effective wage data) on a guaranteed basis, for standard working hours, and

A credible living wage benchmark that represents local living conditions and living costs

Senior-level leadership on supply chain wages is essential. Sustainability teams will need a strong mandate from company leadership to engage internal stakeholders and buyers to drive the agenda internally. Most of the strongest examples of effective action on wages have been publicly endorsed or indeed initiated by top management. As some of the leading companies working on this issue have noted, it is important that the leadership of the company truly believe that wages for workers in the supply chain are important. It will be however important to ensure support and buy-in at all levels of management within the company to ensure a successful implementation.

One of the strongest tools to build on is a link to the core values of the organization. This will typically also be linked to long-term visions and business strategies such as ‘future-proofing’ and building resilient supply chains. In many cases, engaging senior internal stakeholders will be facilitated by analysis and benchmarking of supply chain wages to demonstrate the scale and prevalence of concerns relating to the adequacy of wages in supply chains.

Having assured senior-level buy-in, translate an accurate analysis of supply chain wages into a clear, risk-focused programme of action, backed up by monitoring and measurement to ensure progress. Many companies will not be able to work across their entire supply chains at once and then when decided, it needs to be clear what options are on the table in terms of actions. An example implementation process that integrates the building blocks discussed in this section is included below:

Empower and train procurement teams to adopt sustainable practices that will impact their suppliers’ capacity to advance decent work. Procurement teams have a key role to play in creating sustainable supply chains but can often be disconnected from the sustainability function of the company. It will be crucial to incorporate social sustainability objectives in sourcing performance metrics. As long as sourcing managers are only rewarded for cost reductions and social sustainability wins are not taken into account, it is difficult to see how the improvement of working conditions for supply chain workers (including improved wages) can be achieved. The Decent Work Toolkit for Sustainable Procurement, developed by the UN Global Compact Decent Work in Global Supply Chains Action Platform, can help companies, procurement professionals and suppliers to develop a common understanding on how to advance decent work through purchasing decisions and scaling up efforts to improve lives around the globe.

Involve and enable the procurement team to embed living wage considerations within their working processes. The first universal objective, common to all companies is achieving a closer integration of commercial functions with supply chain living wage commitments. It is crucial to closely engage and work with procurement colleagues to understand their views and concerns in relation to how purchasing practices can affect sustainability outcomes such as wage levels and working hours, and also to share knowledge on how purchasing decisions can affect outcomes for workers in supply chains. Pending decisions on the nature and form of supplier expectations for a living wage, there are a range of technical elements that will need to be covered (open-book costing, labour minute costing, ring-fencing labour costs) to ensure that commercial functions can effectively support public commitments to achieving a living wage in the supply chain.

Clarify what is on and off the table in terms of potential ‘purchasing practices’ variables that can be deployed to support joint work with suppliers to raise wages. Purchasing practices are understood here to include the range of ways in which commercial processes and decisions led by buyers can impact outcomes for workers: accounting for labour costs within price negotiations, timing and terms of payment, forecasting and planning, duration and commitment to trading relationships, the proportion of offtake and responsible exit.

Mapping, consolidating and shortening supply chains may be crucial to living wage efforts. A company’s ability to identify and act on achieving living wages in its supply chain depends critically on knowledge of, and relationships with, suppliers. Moving beyond the conventional view, several leading brands have strategically moved to consolidate and shorten supply chains — buying more from fewer suppliers, with fewer intermediaries. This has positioned these brands, both in terms of quality of relationships and commercial leverage, to focus efforts more effectively on working with fewer suppliers on wage issues. As noted above, the constructive pressure of meeting living wage commitments can foster a strategic shift in business which force innovation and bring new gains — including more resilient supply chains.

Companies can increase leverage with suppliers through longer-term buying commitments. Whether through a defined strategic supplier programme or as a more informal risk-sharing arrangement with individual suppliers, companies should build a foundation of trust and constructive, open engagement.

Define an approach to equitable cost-sharing — be prepared to pay more to achieve results. Companies will need to be prepared to conclude purchasing terms (and prices) that support a longer-term engagement and enable longer-term investments on the part of suppliers. The central purchasing factor — Free on Board (FOB) price — cannot be left out of the equation.

Position the brand as a partner for suppliers in achieving sustainable and improved wages. Suppliers can create and share value with workers through enhancements to people management, worker engagement and process efficiency. But experience and existing practice suggests that suppliers will require considerable engagement, support and guidance to ‘buy in’ to the living wage concept and the business case for investing in their human capital, to understand their role in achieving this and to affect the business systems upgrading necessary to sustain what may be significant increases in labour costs.

Consider how the brand can offer support for suppliers, including through providing technical guidance, experience-sharing as well as co-investment and risk-sharing. Cooperation on wage enhancement may require support for buyers to gain a more detailed and accurate understanding of their cost base, and the role of wage and non-wage labour costs within this cost base.

What is at stake is a fairly fundamental mindset shift: from a perception of labour as a cost to be minimized to an understanding that, in a competitive and rapidly developing business context, people are the central asset in which to invest. This means that wages — alongside worker-management dialogue, skills development, and more professional HR management — are a key element in more strategic incentivisation of work effort, necessary to spur improvements in quality and productivity, as well as greater value creation.

The overarching balance to be struck in implementation is between (enhancing) supplier efficiency and labour management practices and (modifying) buyers’ purchasing practices. This may also require (a form of) open-book transparency between companies and suppliers in a way that is novel and demanding for buyers and suppliers. This degree of cooperation and information sharing can only be developed over time. There may also be a need to incorporate a broader process to set expectations related to transparency at the tendering and onboarding stage for new suppliers or suppliers whose contracts are up for renewal.

Boosting productivity is a central opportunity for increasing wages and conversely, low productivity is a barrier to wage growth. Equally, low wages may be a disincentive for suppliers to invest in productivity-enhancing technology. However, while some gains in value creation that can be passed on to workers could be made available through improvements in supplier efficiency and management capacity, it should not be expected that this will cover the margin necessary to bridge the gap. Further, an emphasis on productivity as an enabler for wage improvements triggers a responsibility to establish safeguards against unintended consequences of rapid gains in productivity such as increases to work intensity that could lead to excessive over time or health and safety concerns, or rapid job elimination.

Some form of ‘risk underwriting’ may be required for suppliers embarking on living wage efforts: this could include committed long-term purchasing agreements, guaranteed minimum pricing/minimum purchase volumes or financial support contingencies.

It is constructive to explore with suppliers how addressing poverty wages can enable upgrading toward higher value creation which can itself sustain living wages. Suppliers’ ability to innovate depends crucially on their ability to adapt their production processes and the adaptability of their employees. Investing in workforce skills development can sustain a virtuous cycle of enhanced productivity leading to returns which can sustain higher wages.

Identify scope to increase leverage through coordination with other buyers. Where a company buys a minority (even if significant) of product from a supplier, building credible responses require new forms of coordination and partnership between buyers. Collaborative initiatives — including IDH, ACT, FWF and FLA — can drive systemic change at both supplier-industry and national government levels and can greatly inform and enhance individual company action on living wages, particularly in terms of exercising positive influence over minimum wage setting and scope for (sectoral) collective bargaining.

Look for opportunities to join up your work within your own supply chain with larger initiatives at sectoral, national levels. Experience has shown that individual advances with individual suppliers can have limited impact if they are not reinforced by broader change. Companies can play a number of roles here. Therefore, multinationals can usefully focus efforts on sharing examples of how positive, lasting impact on pay systems can be achieved. This can influence policy discussions that could influence working conditions and wages. Big change can start small and demonstrating that there is another way of successfully doing business at enterprise level can be an important driver of change at national, policy level.

In addition to the collaborative initiatives mentioned above, there are also emerging discursive platforms to share lessons and good practices.