The levels of wages in essential for workes in export sectors as a potential exit from poverty. Companues have a responsibitly to support this development and workers rights. To have a positive impact companies need to change their assumptions and practices, and adopt a more innovative and collaborative agenda.
Executive summary by DIEH, Report by DIEH, 2015
Addressing low wages in global supply chains1 is a fundamental challenge to ethical trade. The ability to earn enough in a standard week for a worker and his or her family to cover basic needs and live with dignity is recognised as a fundamental human right2. Yet for all too many workers low incomes and poverty wages are the reality and the share of wealth that goes to workers is steadily falling. Falling wage shares, low pay and income inequality are truly a global concern, and pose a significant risk to shared and sustained prosperity. How can we talk meaningfully about ‘doing ethical trade’ where wages are firmly stuck below the level at which people can live decent lives, and companies feel that it is beyond their power to change this?
The hardship that low wages cause for workers and their families is not without cost to business. Low pay commonly equates with high labour turnover and restricted skills development, limiting product quality; there is increased risk of labour unrest; and customer-facing businesses risk increasing reputational damage from exposés about goods produced by chronically low paid workers.
For workers in low-income and industrialising economies, waged work in export sectors is a potential exit from poverty, and contributes to the country’s economic development. Companies have a responsibility to support these benefits by providing decent, regular, adequately paid employment.
If they fail to do so, in-work poverty and imbalances of power at local and global levels become entrenched.
A new agenda on supply chain wages
This report offers a new agenda on global supply chain wages, outlining practical steps for companies – both large and small – to take, informed by the framework established under
the UN Guiding Principles on Business and Human Rights (UNGPs).
The UNGP framework sets down the following two challenges3 for any company to address living wages in its supply chain. First, to understand the root causes that may give rise to adverse impacts on wages. Second, on the basis of this analysis, to identify how a company can use its influence to reduce adverse impacts.
A thorough analysis of low wages in global supply chains suggests that a number of factors combine to keep wages low. Companies can have an impact. But to do so they need to change their assumptions and practices, and adopt a more innovative and collaborative agenda. Companies buying from global supply chains need to:
- Coordinate and collaborate. Coordinate between themselves, and collaborate effectively with suppliers, employers associations, trade unions, NGOs and national governments, including in relation to setting adequate national minimum wages.
- Actively support collective bargaining. Support the development of durable, local collective bargaining mechanisms and institutions – trade unions in particular.
- Review and revise short-term commercial practices to safeguard long-term, sustainable business performance.
- Take a sector-wide approach, linking up advances made at supplier workplace-level to broader institutional developments
Focus on implementation, not calculation
For companies, benchmarking wages can be an important first step - part of due diligence under the UNGP framework - to understand wage levels and ascertain and prioritise potential adverse impacts, in order to stimulate collective action. One of these benchmarks should be what workers themselves judge to be an adequate wage, ascertained through their representatives.
Ultimately, however, the challenge is not how to calculate living wages, but how to implement them.
Wage benchmarks need to be directly linked to support for the development of collective bargaining mechanisms that ensure wages reflect and keep up with increases in the cost of living.
This requires participatory wage-setting processes such as collective bargaining that allow wages to be regularly revised. Wages which are adequate to meet household basic needs need to be locally determined, and locally ‘owned’. Workers know best what they need to support their families.
Wage levels also need to be understood in the context of working hours and transparency of pay systems. Workers should not have to work excessive hours in order to earn a living wage.
If workers are not clear how their pay is calculated, they may miss out when productivity and quality improve, providing a better margin for their employers.
Support effective institutions...
The focus must be the development of local labour market institutions4 - including tripartite minimum wage setting mechanisms and collective bargaining - which can reconcile the interests of the diverse parties involved. Companies can contribute through promoting ‘social dialogue’ enabled by freedom of association and, emerging from this, collective bargaining on terms and conditions of employment.
The development of such institutions requires all stakeholders, including companies, to make a candid assessment of current power imbalances and to support the capacity of both workers and employers to make these institutions work. This is a long- term programme which should be supplemented by immediate interventions, such as influencing policy-making debates on minimum wage setting and industrial competitiveness.
Ultimately, adequate wages in global value chains will be achieved by institutionalising effective wage floors – establishing levels below which wages cannot be allowed
to fall - across sectors and across regions. This is the joint responsibility of governments, companies (buyers and employers) and trade unions. Wage floors ensure that competition will not be distorted to the disadvantage of the enterprises, sectors or national economies that enable workers and their families to meet their needs.
...through locally driven, sector-wide collaboration
The joint ETIs (JETIs) experience suggests that, in many supply chains, it is unlikely that individual companies will be in a position to promote and effect change on this scale, or at this level. While companies have a responsibility to identify and mitigate adverse human rights impacts through their own supply chains, the best and most appropriate response to inadequate wages will almost always require sector-wide collaboration.
1 In this report we use the phrases ‘supply chain’ and ‘value chain’, following the business literature, with different technical meanings. The ‘supply chain’ describes the flow of products from suppliers to consumers, with a primary focus on costs of materials and efficient delivery: a supply chain is what ensures that the product gets to market. The ‘value chain’ describes the flow from the consumer to the source, where the consumer (the ‘market’) is seen as the source of value: a value chain focuses on who creates value and who gets the value in the chain. It may be surmised that the wage issues described here concern the integration of supply chain management with value chain management.
2 “Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.” Universal Declaration of Human Rights
3 It also sets other challenges such as providing redress to workers whose human rights have been denied or abused.
4 We use ‘labour market institutions’ to refer inter alia to collective bargaining and minimum-wage setting mechanisms, following ILO (2015), Labour Markets, Institutions and Inequality: Building just societies in the 21st century: ‘Good governance, social stabilization and economic justice are not luxuries that weigh down and impede the process of development. They are the essence of development itself.’
Who is DIEH
Practical Solutions to Complex Problems
The Danish Ethical Trading Initiative was established in 2008 and has grown into a strong organisation with more than 60 members that operate across a range of sectors.
As a multi-stakeholder organisation, we gather Danish companies, public organisations, trade unions and NGO’s to tackle ethical challenges by developing sustainable solutions that result in responsible production, responsible purchasing practices, and responsible supply chain management in global value chains.
Sustainable Development across international trade
Our goal is to advance and promote international trade in accordance with human – and labour rights, and to facilitate companies and organisations in their efforts to foster a sustainable development in developing countries and growth economies.
We uphold International guidelines
Throughout our work, we contribute to the integration of international principles and guidelines such as UN Guiding Principles on Business and Human Rights; ISO 26000, the OECD Guidelines for Multinational Enterprises, and UN Global Compact