At the recently-concluded World Economic Forum Davos Agenda 2021 meetings, leaders repeatedly stressed that social and environmental capital are integral parts of whatever new form of capitalism emerges to meet our existential challenges.
Companies often say that “workers are their biggest asset”. If that is truly the case, then treating workers in global supply chains fairly and with respect - including on issues of compensation - must be the first step in any meaningful approach. The Universal Declaration of Human Rights (1948) is clear:
“Everyone who works has the right to just and favourable remuneration ensuring for himself/herself/themself and his/her/their family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.”
At a time when trust in governments is at an all-time low and economic inequality has widened in many parts of the world,governments and businesses need to reconsider their approach to living wage.
The principle of a “living wage” is not new. It is as old as the International Labour Organisation (ILO) itself, reflected in its 1919 Constitution and touched upon in many UN labour and human rights standards that have come since.
The level at which the living wage is set is highly context-driven, both in space and time, rates varying between nations and even within countries. There is no single definition of living wage, but it is generally understood to mean a wage rate that provides households with a minimum acceptable standard of living, including essentials such as water, food, housing, education, healthcare, clothing and transport.
Making it a reality has proved much more difficult.
There is no specific convention or binding piece of international law on the living wage. Whilst forced labour has its own 1930 Convention and the unanimously ratified 2014 Protocol, living wage has never had such alignment. To be sure, even the forced labour convention is invoked less often when the countries involved are large and powerful.
The prevailing view in economic orthodoxy is that markets should determine wages, depending on the demand and supply of labour, and to many neo-liberals and libertarians wages are best determined by market forces. For many businesses and governments in developing economies, low wages have been part of their competitive advantage. But at a time when trust in governments is at an all-time low and economic inequality has widened in many parts of the world, including advanced economies, governments and businesses need to reconsider their approach to living wage.
Corporate Commitments to Living Wage are Growing
A growing number of companies have made a commitment to a living wage within their own workplaces (for example in the UK), but far fewer have extended this to their global supply chains.
Unilever’s announcement last week – that it will integrate living wage commitments beyond its own workforce to include at least the first tier of its global value chain by 2030 – is a welcome move. Unilever is not the first company to make such a commitment, but as media reports have noted, it is a plan that has the potential, given Unilever's enormous size and global reach, to change the lives of millions of people.” With 60,000 direct suppliers across a diverse range of consumer goods, Unilever’s commitment to securing a decent wage will hopefully have a ripple effect. As it is the suppliers themselves that will have to pay this wage, the two billion Euros a year support to businesses owned and managed by underrepresented groups is particularly welcome.
A handful of other international companies have also been extending their living wage commitments to their supply chain, including Adidas, H&M, Ikea and Astra Zeneca. The Adidas position on “fair compensation” is particularly interesting as it shows how a living wage intersects with many other workplace issues: legal minimum wage, decent living standards, a worker’s performance and skills, reward overtime, price increases, an employer’s profits and sales, and changes in work technology.
Trade unionssee the living wage as a dynamic concept and one in which workers’ agency is critical.
Trade unions also see the living wage as a dynamic concept and one in which workers’ agency is critical. For example, the Action, Collaboration, Transformation initiative (ACT) brings together international brands, retailers, manufacturers and unions to address living wage in the textile and garment supply chain – placing collective bargaining and freedom of association at its centre. In other words, living wage is not a privilege granted to workers; rather, it is enabled by workers, as a matter of enjoying their workplace rights (as set out in the ILO Core Conventions). Initiated by the IndustriALL Global Union, the membership of the ACT initiative, currently comprising mainly European companies, continues to grow.
Despite that, much remains to be done.
As 2019 data from the Corporate Human Rights Benchmark shows, only 10% of the world’s largest companies in sectors such as agriculture, extractives, apparel, or ICT, have living wage commitments in either their own operations or supply chain. The percentage is even lower in the automotive sector, General Motors being the only company amongst the 30 analysed to have a living wage policy at all.
And yet, there are a number of reasons why we might see progress in future.
Government Action is also Advancing
The Dutch and German Governments have been the most proactive within Europe, and now that the European Commission is actively considering mandatory human rights and environmental due diligence for companies. It is yet to be determined how many non-European businesses, selling into the European market, might be covered by such legislation / regulation, but it is likely to require companies to “know” the wages being paid in their supply chains. And in an environment where investors are increasingly asking companies questions about their ESG commitments and performance, boards will increasingly need to explain why poverty wages in global supply chains are permissible.
In an environment where investors are increasingly asking companies questions about their ESG commitments and performance, boards will increasingly need to explain why poverty wages in global supply chains are permissible.
But the living wage can no longer remain a niche European preoccupation.
Most governments have tended to focus on the national minimum wage structures and not yet on the complexities of setting local living wages. This is a question for the new Biden Administration in the United States (which is moving towards a federal minimum wage of $15/hour) as well as the Narendra Modi administration in India. It is encouraging that more and more states and cities across the United States now have wage statutes.
Larry Fink, the chief executive of Blackrock, the investment corporation, recently challenged companies to make the transition to a net-zero economy. But such a transition cannot be subsidised through supply chain poverty. Achieving a “just” energy transition, of moving to a low carbon economy while protecting the rights and interests of communities and workers who are affected by the transition, can leave no one behind.
The UN Sustainable Development Goals address decent work (SDG8), and a living wage is a key driver for gender equality (SDG5), reduced inequalities (SDG10), reducing poverty and hunger (SDG 1 and 2), and enabling better health (SDG3) and education (SDG4). The World Benchmarking Alliance has included living wage in supply chains as a core indicator for all 2,000 companies in its basket of indices – this will help bring many more companies under scrutiny and is useful for investors evaluating companies.
Whilst complex, discussions about how the living wage is applied in practice are here to stay. There is reason to believe that during 2021 more governments, investors, finance organisations, and companies will respond further to the demands of trade unions and civil society to make this a permanent part of how business is done.
It will be for those who don’t believe that workers deserve a living wage to explain why the status quo should be maintained, as levels of national inequality and social division continue to rise.
FAQs
What is an example of stakeholder capitalism? ›
Stakeholder Capitalism Examples
Examples include paying fair wages and offering learning and development opportunities to employees. Companies can reduce CEO pay to more equitable levels. Enterprises should engage in sustainable business practices.
Stakeholder capitalism is the idea that businesses have a responsibility that extends beyond their shareholders. Employees, the media, and investors are urging businesses to take a stand on issues that affect their wider communities and create greater equality.
Does increase in minimum wage cause inflation? ›No, the federal minimum wage is not tethered to inflation.
What is the difference between a stakeholder economy and a shareholder economy? ›A shareholder owns part of a public company through shares of stock, while a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation. (They have a "stake" in its success or failure.)
Who benefits from stakeholder capitalism? ›Stakeholder capitalism proposes that corporations should serve the interests of all their stakeholders, and not just shareholders. Stakeholders can include investors, owners, employees, vendors, customers, and the general public at large. The focus is on long-term value creation, not merely enhancing shareholder value.
What are the 4 types of stakeholders examples? ›Typical stakeholders are investors, employees, customers, suppliers, communities, governments, or trade associations. An entity's stakeholders can be both internal or external to the organization.
What are the four principles of stakeholder capitalism? ›The four guiding principles behind conscious capitalism are a higher purpose, stakeholder orientation, conscious leadership, and a conscious culture.
What is the main idea of stakeholder theory? ›Stakeholder Theory is a view of capitalism that stresses the interconnected relationships between a business and its customers, suppliers, employees, investors, communities and others who have a stake in the organization. The theory argues that a firm should create value for all stakeholders, not just shareholders.
What is an example of a stakeholder? ›Based on this criteria, stakeholders often include customers, employees, investors, suppliers, boards of directors, community members and organizations, and government entities.
Why minimum wage should not be raised? ›Opponents of raising the minimum wage believe that higher wages could have several negative repercussions: leading to inflation, making companies less competitive, and resulting in job losses.
Does everyone get a raise if the minimum wage goes up? ›
Raising the minimum wage means that business owners and employees in the United States are legally required to raise the hourly wage for their minimum wage workers—and only their minimum wage workers. If you're already earning above minimum wage, your employer won't be required to give you a pay increase too.
Should we raise the minimum wage? ›Economists have also linked higher wages to better physical and mental health and reduced “decision fatigue,” leading to higher productivity. Raising the minimum wage reduces turnover. Higher wages lead to lower employee turnover, resulting in reduced recruiting and training costs.
Who is more important shareholders or stakeholders? ›Shareholders are important for your company, but as a project lead or program manager you should really prioritize stakeholder theory. That's because shareholders are usually most concerned with short-term goals that impact stock prices, rather than the long-term health of your company.
What is an example of economic stakeholder? ›Groups who have an interest in the activity of a business e.g. shareholders, managers, employees, suppliers, customers, government and local communities.
Who are key stakeholders in economics? ›A stakeholder economy requires businesses to create value for multiple stakeholders including workers, customers, communities, the environment, and shareholders.
Who is the most powerful stakeholder? ›Shareholders/owners are the most important stakeholders as they control the business. If they are unhappy than they can sack its directors or managers, or even sell the business to someone else. No business can ignore its customers.
Who profits the most from capitalism? ›Capitalism tends to benefit capitalists the most. These include business owners, investors, and other owners of capital.
What are the 6 principles of stakeholder capitalism? ›The stakeholder theory is based on six principles – the principle of entry and exit, the principle of governance, the principle of externalities, the principle of contract cost, the principle of agency, and the principle of limited immortality.
Who are the most 3 important stakeholders? ›As a general rule, stakeholder priority can be divided into three levels. The first and most important comprises employees, customers, and investors, without whom the business will not be able to operate. Secondary to them are suppliers, community groups and media influencers.
What are 3 principles of capitalism? ›Three distinctly ethical principles – prosperity, justice and liberty – were woven into Smith's famously lucid explanation of the forces shaping what we still call the free market. And it is high time that they were re-emphasised. Adam Smith wrote his epic treatise The Wealth of Nations in 1776 (Smith, 2000).
What are the 5 principles of stakeholder engagement? ›
- Stakeholders and organisational purpose. ...
- Vision. ...
- Engagement. ...
- Decision-making. ...
- Evaluate.
Some of the most important aspects of a capitalist system are private property, private control of the factors of production, accumulation of capital, and competition.
What are the three values of the stakeholder model? ›Stakeholder Model - normative, descriptive, instrumental.
What are the core arguments for stakeholder theory? ›Stakeholder theory argues that a business has a corporate social responsibility to improve society as a whole and therefore must value all stakeholder relationships to be successful.
What is the argument for stakeholder theory? ›The main arguments in favour of the stakeholder theory are that the theory is not only a single model to resolve the problem of identifying the proper objective of corporations, but also considers economics and ethics issues that make companies take social responsibilities, and to presents fairness to everyone involved ...
What is a real life example of stakeholder theory? ›Stakeholder theory example
As an example of how stakeholder theory works, imagine an automobile company that has recently gone public. Naturally, the shareholders want to see their stock values rise, and the company is eager to please those shareholders because they have invested money into the firm.
What Is the Role of a Stakeholder? A stakeholder's primary role is to help a company meet its strategic objectives by contributing their experience and perspective to a project. They can also provide necessary materials and resources. Their support is crucial to a successful project.
Who is a stakeholder in your life? ›Stakeholders are those who may be affected by or have an effect on an effort. They may also include people who have a strong interest in the effort for academic, philosophical, or political reasons, even though they and their families, friends, and associates are not directly affected by it.
What is the biggest problem with minimum wage? ›- Minimum wages reduce employment. ...
- Minimum wage hikes reduce the earnings of low-paid workers. ...
- Minimum wage hikes make some low paid workers better off at the expense of others. ...
- Minimum wage hikes make young workers less skilled, lowering their future earnings.
Some economists argue that increasing the minimum wage encourages consumer spending, helps families out of poverty, and boosts tax revenue while reducing tax-funded government assistance.
What are two reasons why minimum wage should be raised? ›
- It is long overdue. ...
- It would address longstanding racial and gender inequities. ...
- It would reduce poverty. ...
- It would fuel economic growth. ...
- It would save taxpayer money and reduce use of government programs. ...
- It's what the vast majority of Americans want.
| State | 2022 Minimum Hourly Wage | 2023 Minimum Hourly Wage |
|---|---|---|
| California | $14.00 for employers with 25 or less workers; $15.00 for larger businesses. | $15.50 for all employers. |
| Colorado | $12.56 | $13.65 |
| Connecticut | $14.00 | $14.00 |
| Delaware | $10.50 | $11.75 |
- List your accomplishments from the past six months, the past year and your time with the company. ...
- Know what a competitive salary looks like for your position. ...
- Let your boss know what's in it for them. ...
- Be confident. ...
- Provide your request in writing.
Without an increase in the demand for labor — that is, an increase in labor productivity due to better technology, more capital per worker, or additional education — a higher minimum wage will simply price some workers (the least productive) out of the market, and their incomes will be zero.”
Does increasing minimum wage reduce poverty? ›Conclusion. Researchers determine that regardless of the scenarios, a federal minimum wage increase would reduce poverty among all race and ethnic groups. Considering this wage increase would likely impact 56 million workers, it has the potential to bring great financial relief to families who need it most.
What is the minimum wage in the United States? ›The federal minimum wage is $7.25 per hour. This rate applies to covered nonexempt workers. The minimum wage for employees who receive tips is $2.13 per hour. The amount of tips plus the $2.13 must reach at least $7.25 per hour.
What state has the highest minimum wage? ›- Washington: $15.74. Living wage: $19.58.
- California: $15.50. Living wage: $21.24.
- Massachusetts: $15. Living wage: $21.35.
- New York: $14.20. Living wage: $21.46.
- New Jersey: $14.13. Living wage: $18.71.
These general key stakeholders often include company leaders, executives, major investors or creditors and any government agencies that help fund your projects. You may also sometimes want to identify the key stakeholders of a specific project or initiative at your company.
Which is one of the most important stakeholder from? ›Explanation: Users are always the most important stakeholders. After all, without users or customers, what's the point of being in business?.
Who is the number one stakeholder? ›#1 Customers
Many would argue that businesses exist to serve their customers. Customers are actually stakeholders of a business, in that they are impacted by the quality of service/products and their value.
Why is stakeholder capitalism important? ›
Stakeholder capitalism is the idea that businesses have a responsibility that extends beyond their shareholders. Employees, the media, and investors are urging businesses to take a stand on issues that affect their wider communities and create greater equality.
What are the cons of stakeholder capitalism? ›One con of stakeholder capitalism is that the interests and goals of the various stakeholders often conflict. External factors (political, social, environmental) influence decision-making for a company and are outside the control of leadership.
Who invented stakeholder capitalism? ›Klaus Schwab.
The Founder and Executive Chairman of the World Economic Forum may be among of the first people to use the term Stakeholder Capitalism about 50 years ago. WEF recently updated its original Davos Manifesto to clearly advocate for business strategies that address the needs of all stakeholders.
- collaborator.
- colleague.
- partner.
- shareholder.
- associate.
- contributor.
- participant.
- ally.
Project manager: From the initiation to closing, a project manager is the most critical stakeholder throughout all the project phases as they are the project's leaders. Team members: Team members are equal, if not more, critical stakeholders for the project's success.
What are 5 examples of capitalism? ›- Hong Kong.
- United Arab Emirates.
- Singapore.
- New Zealand.
- Australia.
- Canada.
- Switzerland.
- United Kingdom.
Based on this criteria, stakeholders often include customers, employees, investors, suppliers, boards of directors, community members and organizations, and government entities. Stakeholder capitalism is a system in which an organization prioritizes stakeholders' interests.
What are the four 4 major components of the stakeholder management plan? ›The four steps of the stakeholder management process are identifying stakeholders, engaging stakeholders, managing stakeholder engagement, and managing stakeholder expectations.
What are the four 4 key features of capitalism? ›The main characteristics of this system include private ownership, the motive for profit, the ability for businesses to compete in the free market, and minimal intervention in government.
What are the 7 principles of stakeholder management? ›- acknowledge.
- monitor.
- listen.
- communicate.
- adopt.
- recognise.
- work.
- avoid.
Who is a good example of capitalism? ›
In a capitalist country, the focus is on profits over anything else; in a socialist country, the public is seen to be more important, and social welfare is a major priority. The United States, the U.K., and Germany are examples of modern capitalist countries.
What are 3 good things about capitalism? ›- It encourages efficient production. Mixed-market capitalism rewards the most efficient producers since they can sell more goods and earn more money than inefficient producers. ...
- It facilitates rapid economic growth. ...
- It rewards innovation. ...
- It offers social and financial freedom.
Capitalism is often thought of as an economic system in which private actors own and control property in accord with their interests, and demand and supply freely set prices in markets in a way that can serve the best interests of society. The essential feature of capitalism is the motive to make a profit.