Living wage and living income: essential elements of corporate responsibility in global supply chains

In just a few years’ time, the principle that all workers deserve a decent standard of living has gone from niche to mainstream, with major international companies making commitments to pay living wages to their workers and to ensure that living wages are paid throughout their supply chains. The concept of living wage – and the closely related concept of living income – is now increasingly recognized as an essential human right by sustainability initiatives, civil society, regulators, investors, and consumers. The Accountability Framework, a consensus-based set of norms and guidance for responsible agriculture and forestry supply chains, is one example, with a provision for living wage in its Core Principles. With millions of forest and farm workers living below the poverty line, it’s time for all corporate leaders to set and implement commitments to living wages and incomes.

Across all industries and countries, wages are the number one concern for workers and their families. Payment of a living wage/income can contribute to addressing root causes of poverty while mitigating many other basic human rights issues such as gender inequality and the eradication of forced and child labor. Thus, living wage/income contribute directly towards achieving Sustainable Development Goals (SDGs) such as SDG1 (No Poverty) and SDG8 (Decent Work and Economic Growth) and support additional SDGs related to health, education, life on land, gender equality, water, and adequate standards of living, among others. Decent livelihoods can also support environmental objectives: when farmers earn enough money to sustain themselves and their families, they may be less likely to convert natural forests or other ecosystems into new cropland.

Beyond these important reasons to achieve living wage/income, companies are increasingly subject to mandatory due diligence requirements to address human rights and environmental impacts in their supply chains. This includes existing laws in France, Germany and the UK, as well as the European Commission’s recent proposal for a Directive on corporate sustainability due diligence EU-wide.

Defining living wages and incomes

Living wages/incomes are defined as the total remuneration needed for a household in a particular place to afford a decent standard of living for all members of that household. Elements of a decent standard of living include food, water, housing, education, healthcare, transportation, clothing, and other essential needs. The idea of a living wage applies to the context of hired workers (e.g., in factories, farms, and forests) whereas living income applies to the context of any income earner, such as self-employed farmers.

Although payment of a living wage/income has long been recognized by the International Labour Organization as a basic human right, one of the biggest barriers to progress in the past was a lack of common understanding and definitions. The Global Living Wage Coalition (GLWC)—co-founded and led by Social Accountability International, the Rainforest Alliance, Fairtrade International, and ISEAL—was established to fill that gap and has grown into a unique knowledge-action partnership between the Anker Living Wage and Income Research Institute (Anker Research Institute) and a network of standard setting organizations that aim to support and inspire collaborative action toward wage increases globally. The Anker Methodology is designed to calculate the living wage level for any given contexts, but can also be applied to calculate living income, as the cost of living for a household is the same regardless of how income is derived.

Today the Anker Research Institute’s publicly available definition and methodology for calculating a living wage have become widely accepted as standard, and have been included in the Accountability Framework’s Operational Guidance on Workers’ Rights and the certification programs of Rainforest Alliance, Social Accountability International, Fairtrade International, Forest Stewardship Council, and Roundtable on Sustainable Palm Oil, among others, the combined reach of which is millions of workers around the world.

Implementing a living wage commitment

Despite the clear rationale for, and growing momentum around living wage/income, understanding how to make it a reality can feel difficult for any company, even those committed to protecting the human right to a decent standard of living. Rather than feel daunted, companies can now access a growing library of practical resources and implementation tools, already tested and ready for use. These include:

  • The Accountability Framework’s Operational Guidance on Workers’ Rights – A companion to the Accountability Framework’s Core Principle on human rights, this guidance provides an overview of living wage, tips for implementation, and a set of resources for further information.
  • ALIGN – A guidance tool for the agri-food sector that offers a step-by-step action process for developing and implementing a living wage strategy based on the UN Guiding Principles for Business and Human Rights. The platform is developed by Hivos, Fairfood, and Rainforest Alliance, with support of the German Federal Ministry for Economic Cooperation and Development.
  • Global Living Wage Coalition – A growing library of location-specific and internationally comparable living wage and living income estimates, plus free access to the widely accepted Anker living wage and income benchmark methodology. GLWC member organizations have extensive expertise across many sectors and locations and are well-positioned to provide tailored guidance on how to start implementing effective living wage strategies.
  • Living Income Community of Practice – A resource hub for living income measurements (based on Anker Methodology) and strategies to close the living income gap.
  • Rainforest Alliance – A certification program and tailored services that helps farmers and supply chain actors to assess prevailing wages against living wage benchmarks, identify the gap to a living wage, develop wage improvement plans in consultation with workers, and measure progress.
  • Fair Labor Association Fair Compensation Dashboard – A data collection tool that helps companies measure workers’ average wages, compare against current living wage benchmarks, and demonstrate progress towards a living wage throughout the company.
  • IDH Roadmap on Living Wages – A guidance tool that helps companies identify living wages, measure living wage gaps, and secure living wages throughout their supply chains.

With these tools in hand, here are five tips to help any company get started:

  1. Set or strengthen a robust policy commitment – A good company policy should clearly specify a commitment to living wage and income across the company’s entire production and sourcing base. This should be nested within a broader policy to respect all workers’ rights so that, for example, workers do not have to work overtime hours or meet burdensome performance requirements to earn the living wage. Further, a policy commitment to respect and support the right to collective bargaining can support both supply chain and sector-wide advances toward payment of living wages and incomes.
  2. Firmly embed the policy in company management systems – No matter how well-written the policy, it will not be effective as a standalone statement; it must be integrated fully within the company’s priorities and core business functions. This may require changing existing policies that conflict with the goal of a living wage/income (e.g., choosing suppliers based solely on low prices). Avoid silos by making sure that all teams (e.g., sustainability and procurement) are working together on implementation, with senior leadership holding final accountability.
  3. Assess status and gaps, and work toward incremental progress – Meeting living wage/income targets for companies downstream in the supply chain requires traceability and data collection to assess current wages in the supply chains, living wage levels, and progress toward closing the gaps. While data collection is a crucial step, it is important not to get stuck in this phase. Instead, companies should take early action to close gaps while also working to collect more and better data. Progress should be monitored and communicated to stakeholders as the company works toward its goal of fully achieving living wage/income levels throughout its supply chains.
  4. Engage the supply chain and share the responsibility – Working toward a living wage/income also requires a long-term commitment to suppliers, including active engagement and support. A top-down, compliance-based approach on its own is rarely effective to achieve living wages/incomes throughout a supply chain because it transfers costs disproportionately to upstream suppliers who are least equipped to absorb such costs. Invest in building capacity and paying fair prices along the supply chain to empower and enable suppliers to implement the living wage policy. As trust and relationships with suppliers grows, so will the level of transparency and reliability of data collected.
  5. Don’t go it alone – The network of support for implementing living wage/income continues to grow. In addition to the resources listed above, companies should seek opportunities to collaborate with industry peers, particularly those working in similar sourcing regions. Governments also play a key role in creating the enabling environment for wage improvements and can be key allies. And importantly, workers themselves, through workers’ unions, are well-equipped to raise wages and should be part of the company’s overall strategy.

The past few years have brought new clarity on definitions and tools for how to implement living wage/income, as well as new expectations and mandates from regulators, buyers, and civil society to do so. With these foundations in place, the path is clear for companies to achieve responsible supply chains that provide fair and decent compensation to all people who help put food on our tables.

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About the authors:

Alex Ducett manages communications for Social Accountability International (SAI) and the Anker Research Institute. Founded in 1997, SAI is a global NGO advancing human rights at work. SAI’s vision is of decent work everywhere—sustained by an understanding that socially responsible workplaces benefit business while securing fundamental human rights. SAI and its SA8000 Standard have included payment of a living wage as a core element from their beginning. SAI has worked individually with brands and retailers for over 20 years on strategies to improve wages in their companies and supply chains.

Anny Stoikova is the worker livelihoods lead for the Rainforest Alliance, an international non-profit organization working in 70 countries to create a more sustainable world by using social and market forces to protect nature and improve the lives of farmers and forest communities. The organization’s certification program, tailored supply chain services, landscape-level initiatives, and advocacy work to improve the way the world produces, sources and consumes commodities, such as cocoa, coffee, tea, bananas, palm oil, and forest products.

Karen Steer is a member of the Accountability Framework initiative (AFi) Secretariat, hosted at Rainforest Alliance. The AFi is a collaborative effort to build and scale up ethical supply chains for agricultural and forestry products. Led by a diverse global coalition of environmental and human rights organizations, the AFi works to create a “new normal” where commodity production and trade are fully protective of natural ecosystems and human rights. In 2019, the AFi launched the Accountability Framework, a set of principles, definitions, and guidance for setting strong supply chain goals, taking effective action on them, and tracking progress to create clear accountability and incentivize rapid improvement.