Posted by Stuart Bell

Rethinking living wages

Last week saw the public launch of a new report written by Ergon for the Ethical Trading Initiatives (ETIs) in Denmark, Norway and the UK. The briefing sets out a ‘new agenda’ for business on living wages in global supply chains. The briefing recognises the complexity of the issue, but suggests that this does not mean that progress is impossible, rather it requires a sophisticated and co-ordinated response. So, what are the characteristics of the proposed actions?

Join in

Achieving progress on living wages is bigger than any single company, or any single stakeholder group can manage. Credible responses require news forms of coordination and partnership between peers, and between different stakeholders, particularly involving workers and their representatives – who are central to both the reason for, and the result of, any work on supply chain wages. This can’t be about imposition from above in the supply chain.

Think – and act – sector-wide

In a very different context, John F Kennedy once noted that the ‘rising tide lifts all boats’. Poverty wages at base of supply chains suggest that the ‘trickle-down’ implied in this idea hasn’t happened yet. But we can look at JFK’s aphorism from the opposite direction. Low wages are built-in – ‘locked in’ – across supplier sectors. The tide is low.  There tends to be little wage variation across the lower end of distribution in manyglobal supply sectors, since the downward pressures of perceived threats to competitiveness or employment tend to be felt across entire sectors. The most effective way to ‘unlock’ these pressures is to take an expressly sector-wide approach. ‘Sector-wide’ in both its national and international dimensions – acting across an entire supplier sector in a sourcing country, but also acting in coordination with peers at the level of buyers. Again, this re-emphasises the critical need for collaboration and coordination.

Support the building of labour market institutions

Fundamentally, what we are talking about in economic terms here is the creation and distribution of value in global value chains. Experience suggests that equitable distribution of value doesn’t happen by itself. It requires market institutions, founded on rights. And the labour market institutions which have been central to economies successfully striving to balance economic and social development have been those that facilitate collective bargaining between employers and workers. Equitable distribution of value based on both workers’ livelihoods and business needs is what collective bargaining does. And, coming back to the previous point: sector-wide bargaining is, ultimately, the means to achieve a sector-wide approach to equitable wage determination.

Think again about short-term purchasing practices

Many of the factors affecting wages for workers in global supply chains relate to local and national factors – labour market, regulation, industrial relations, development status of the country. Yet the fact remains that workers in global supply chains are participating in a global process of value creation. And we know that the actions and decisions of operators nearer the consumer – buyers, for instance – can have a significant impact on the working conditions, and broader livelihoods, of these workers. The ETIs have a comprehensive knowledge base on such purchasing practices. This agenda expressly suggests that the crux of purchasing decisions – FoB price – cannot be left out of the equation.

The new briefing is premised on a recognition that low wages and disempowered workers are a brake on social and economic development, on the development of the next generation of consumers and higher-value producers, and a catalyst for social unrest and instability. Which of us can afford not to get engaged?