Closing the Living Wage Gap
According to latest figures, over 730 million people currently live in extreme poverty, meaning around 1 in 10 of us is struggling to survive on less than $1.90 a day.
Although the situation has vastly improved since 1990 when the number stood at 1.9 billion people, progress has slowed in recent years. And now the impact of COVID-19 is expected to lead to the first increase in poverty rates since 1998 due to job losses, price hikes and disruption to vital services such as health care and education.
Ending all poverty by 2030 – the first and arguably most celebrated of the UN’s Sustainable Developments Goals (SDGs) – appears to be drifting out of reach. And in sub-Saharan Africa, where many of Taylors’ suppliers are based, the situation is especially worrying, with the rate of extreme poverty not expected to drop below 10% by the end of the decade, never mind reach zero.
The challenge of eradicating poverty may be as immense as it is complicated, but ensuring people get paid enough to finance their basic needs is central to any solution. Unfortunately, millions of people across the world still don’t earn enough to support a decent quality of life, and in Africa 38% of employees live in dire poverty despite having a job.
The difference between the living wage and what workers are actually paid is known as the living wage gap
The living wage
The Global Living Wage Coalition defines living wage as “the 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 her or his family. Elements of a decent standard of living include food, water, housing, education, health care, transportation, clothing, and other essential needs including provision for unexpected events”. Living income means much the same thing but is applied to income earners, such as smallholder farmers, rather than employees. The difference between the living wage and what workers are actually paid is known as the living wage gap.
Unlike nationally determined minimum wages, employers aren’t legally required to pay a living wage unless the minimum wage is set at the same level as the living wage. However, given that living wages can vary considerably from place to place within a country, it’s rare for this to happen.
Calculating the living wage in a particular region is the necessary first step we must go through to implement a living wage for workers, since it provides a baseline on which to compare future increases in wages and set targets. However, the process of working it out is complex and made all the more so by needing to account for bonuses and in-kind benefits (e.g. housing, healthcare, schooling and subsidised food) that might be provided to an employee on top of their basic wage.
This has resulted in numerous methodologies over the years, which in turn has led to several efforts to introduce a living wage failing due to different stakeholders’ conflicting views on what that wage should be. Thankfully, the situation has improved in recent years with the broad adoption of the Anker Methodology, which is serving to standardise the process.
At Taylors, we’ve worked with IDH – The Sustainable Trade Initiative to measure the living wage gap with our tea and coffee suppliers. Our ambition is to see a living wage being paid to all employees and a living income earned by all farmers within our supply chains. We are now developing new approaches with key suppliers that will test how we close the gap.
Multiple benefits, limited progress
While calculating the living wage has presented practical challenges for those trying to implement a living wage, the wider issues of why wages are low in the first place and what can be done to improve them remain.
Closing the gap
Closing the living wage gap offers a path out of poverty for workers and their families, and there is no stronger reason for doing so than that. But there are also multiple co-benefits to businesses that succeed in implementing a living wage, not only with respect to supporting the SDGs and to promote human rights, but in practical business terms too. For example:
It’s a sad fact, but poverty increases the rate of illness due to malnutrition and unhealthy living conditions, leading to higher rates of absenteeism and reduced productivity. Healthy workers, by contrast, are more likely to turn up for work and have more energy, resulting in greater productivity and improved profits.
Businesses that pay living wages are also more likely to attract better quality employees and instill greater loyalty from their workforce, resulting in improved employee relations.
With the ever-growing demand for ethically sourced produce from consumers, buyers and retailers are increasingly looking for responsible employers to be their suppliers. Retailers that can show that they care about the poorest people in their supply chain stand to win the trust — and custom — of consumers.
It’s reasonable to assume that, given the strong business case for implementing a living wage, suppliers and other industry stakeholders would be doing everything within their power to try to make paying them the norm. And there are certainly instances of this happening. The Malawi 2020 Tea Revitalisation Programme, for example, was set up in 2015 by a coalition of industry stakeholders – including Taylors – specifically to address low pay and improve farmer livelihoods.
In Costa Rica and Belize, the Rainforest Alliance has teamed up with Fyffes, IDH and other private entities to understand living wage gaps in the banana industry and develop plans for improving worker compensation. In Tamil Nadu, India, the Living Wage Multi-Stakeholder Initiative has been working to foster collaborative conversations on practical steps to achieve a living wage for the garment-manufacturing city of Tiruppur. And in Ghana and the Ivory Coast, Tony’s Chocolonely has been improving living standards for thousands of cocoa farmers and their families by paying them a premium in addition to the Fairtrade premium they receive for their cocoa, and which is necessary to ensure a living income.
But despite some success stories, the reality is that putting a living wage in place has proven to be a highly complicated process with a significant number of unintended economic and social consequences that need to be considered. Some incremental and localised changes have been achieved, but very little of the sector-wide change that is required. Through the Malawi 2020 project, for example, 33% of the living wage gap has been successfully closed, but it is still some way short of the 100% target. This is certainly not to say it has not had its successes, but it does demonstrate the scale of the challenge even on projects that have the full co-operation of multiple stakeholders.
A broken system
Central to the problem is that implementing a living wage runs against the grain of deeply entrenched value models for commodities, which in the main are still focused on low costs and profit maximisation. Through these models, income distribution across the value chain is uneven, with the primary producers very often receiving a disproportionately low financial return for their hard work.
This is a multi-faceted problem that cannot be boiled down to a single solution, such as increasing the cost to consumer – although this is certainly a factor where retail prices don’t reflect the true cost of the commodity. Nor can it be adequately addressed by putting pressure on suppliers to pay more to their workers when they are themselves at the mercy of volatile and permanently fluctuating market prices. Introducing measures that don’t look out for the long-term sustainability of the sector would be counterproductive and put jobs at risk.
To create meaningful, wide-scale change involves rethinking this broken system to one that ensures a fair return for effort across the value chain. And this can only be achieved through an awareness and understanding of the problems, and the participation and co-operation of all stakeholders across the entire sector, from retailers, buyers and suppliers, to in-country governments, standard-setting organisations and the workers themselves. Not surprisingly, that is a lot easier said than done.
Not all doom and gloom
This isn’t to say there hasn’t been progress. In November 2019, Taylors took part in the world’s first international living wage conference, The Only Way Is Up, which was held to address living wage and living income in global agri-food supply chains.
In the same month, the IDH launched the Banana Retail Commitment (BRC) in the Netherlands – the first ever country-wide commitment from retailers to close the living wage gap in the banana supply chain. Through the initiative, the country’s biggest supermarkets are aiming to reduce the living wage gap for banana producers by at least 75% within five years. Importantly, IDH is planning to increase the scope and positive impact of the BRC by inviting other interested private sector parties to sign up to the initiative, including supermarkets in other countries outside the Netherlands.
Time will tell how well the coalition succeeds, but it’s a clear demonstration of the joined-up approach and unilateral ambition necessary to bring about wide-scale change.
A way forward
At Taylors, we understand as well as anyone how wages and incomes are a highly complex issue with no simple, one-size-fits-all solution. Making the situation harder is the shortage of case studies that would promote best practice and support replication, where replication is possible. To address this, a group of organisations and companies, including Taylors, are lending support to IDH’s Roadmap on Living Wages coalition to help avoid duplication of efforts and share lessons learned.
As we continue with our own living wage ambitions, we take enormous heart in seeing bold initiatives like the BRC and living wages coalition start to emerge around the world. Only by building up and sharing examples of best practice across all sectors, can we generate the experience and know-how for making universal living wage a reality and help eradicate poverty for good.