7 experts explain why it’s important to pay fairer wages and how to do it

  • The World Economic Forum puts wages in the spotlight at its Annual Meeting in Davos.
  • The ILO finds that the COVID-19 crisis put downward pressure on wages in two-thirds of all countries, and where there was upward pressure, the gains risk is being eroded by the current inflation.
  • Seven experts explain how companies and governments can tackle wage inequality by ensuring fairer wages.

The COVID-19 pandemic is putting downward pressure on wages. Research from the International Labor Organization charts a decline in the level and growth rate of average wages in many countries during the pandemic, particularly affecting low-wage and informal workers.

On average, wages are lower for women than for men. Despite the fact that men make up the majority of the workforce in the United States, women make up the majority of the low-wage workforce. The same is true of most countries, as the World Economic Forum’s Global Gender Gap Report 2021 explains, and the impact of the pandemic set back progress in closing this gender gap by another 36 years.

Image: The Productivity-Pay Gap, Economic Policy Institute

While the vast majority of countries worldwide have minimum wage policies, these policies are not always respected; approximately 266 million wage earners earn below minimum wage, either due to ineligibility or non-compliance. In addition to this, minimum wages do not always reflect living wages, meaning that the minimum wage does not enable workers to meet their basic needs.

Companies and governments benefit from paying fair wages. Research suggests that raising the minimum wage can reallocate workers to more productive establishments. It can address poverty and social inequality and stimulate economic dynamism. Moreover, it can help demonstrate commitment to creating more prosperous, fulfilled societies by aligning with environmental, social and governance (ESG) indicators and stakeholder capitalism metrics.

The importance of ensuring fair wages is growing; as inflation rises, spurred on by surging prices of food and energy, the typical worker has less buying power today than one year ago.

How can governments and companies ensure that fairer wages are provided for workers? Following the Annual Meeting in Davos, the World Economic Forum asked seven experts from the Global Future Council for Work, Wages and Job Creation for their views.

‘Disclose all performance and other indicators relevant to determining pay’

Anna Thomas, Director, Institute for the Future of Work

Fair pay, on clear and transparent terms, is foundational to building a future of better work. Research shows that some firms may use predictive analytics in recruitment and management to reduce worker remuneration. This undermines the principle of fair pay in the Charter for Good Work and impedes negotiations around fair pay. To maintain and demonstrate their commitment companies should disclose all performance and other indicators relevant to determining pay, whether or not automated decision-making systems are involved.

‘Pay higher wages to skilled workers through a ‘progressive wage model’

Annie Koh, Professor Emeritus of Finance, Singapore Management University and Director of the Board, AMTD

Leaders can provide fairer wages by implementing a progressive wage model. A progressive wage model is a three-in-one tool to balance strategic upskilling, productivity enhancement and career development with progressive wage increments. The model works by setting wages based on the skill level of the worker while providing continuous training so that the worker can become more highly skilled as well as more highly paid over time.

It is a method which suits both workers and businesses; paying higher wages to skilled workers ensures that companies benefit from increased worker productivity in the short and long term. A progressive wage model was implemented in Singapore in 2018 across essential services sectors like cleaning, landscape and security, and it extended to other sectors during the COVID-19 pandemic.

‘Ensure access to benefits’

Bettina Schaller, Head Group Public Affairs, The Adecco Group

Never before has the focus on the provision of wages and fair wages in particular been so strong. Discussions and negotiations on developing and optimizing wage policies will be picking up in the wake of the rise in inflation and price levels across the world.

The Adecco Group focuses not only on meeting applicable wage standards of workers in every country they operate in, reflecting different levels of education, skills and professional experience as well as rewarding individual and collective performance, but on ensuring access to benefits such as the financing of training measures whenever possible. In many countries and sectors wages are set by collective agreements complemented by access to sectoral social funds that provide further injections.

Fair wages are defined by many dimensions. Our focus lies on incorporating in the wage setting the local of what it means to live a socially and materially decent life.

‘Ensure that minimum wages reflect living wages’

Rachel Cowburn-Walden, Global Director of Human Rights, Unilever

Implementing a minimum wage is an important legislative act to reduce exploitation of workers, however minimum wages do not always reflect the cost of living. What is needed is adherence to a living wage.

A living wage is a national or regional calculation to afford a decent standard of living. While most countries have a minimum wage set through legislation or collective agreements, fewer countries have ensured that their minimum wage reflects the current cost of living.

Governments should ensure that legal minimum wages reflect living wages and, where this is not the case, companies should at least pay living wages whilst continuing to recognize the right to freedom of association and collective bargaining, and understanding that living wages represent the floor – not the ceiling.

‘Put workers at the center’

Reema Nanavaty, Executive Director, Self-Employed Women’s Association (SEWA)

The COVID-19 crisis sparked a global call to build back better. It highlighted the failure of the current economic model of shareholder capitalism and showed that support for workers – particularly the most vulnerable – needs to be at the heart of corporate decision-making and public policy. A new, human-centred economic model is needed that will prevent the concentration of wealth in the hands of a few at the cost of many. The Self-Employed Women’s Association (SEWA) refers to this as ‘building an economy of nurturance’.

Such an economy will focus on giving workers the skills to sustain themselves and strengthen their resilience. It will emphasizee the deployment of universal social protection and universal labor guarantees, leading to a more equitable distribution of economic resources. An economy of nurturance will make markets more accessible to women, and thus strengthen their economic role in society. Ultimately, an economy of nurturance would increase the value of non-monetary work, including all forms of community and service work.

‘Introduce a combination of wage policies and measures to reduce informality’

Sangheon Lee, Director, Employment Policy Department, International Labor Organisation

Fair wages can be promoted through a combination of adequate minimum wages, collective bargaining over wages, and measures to promote equal pay and reduce the gender pay gap. This in turn requires the establishment of strong and inclusive social dialogue.

However, one of the most significant challenges to compliance with minimum wages is a high incidence of informality, as identified in the latest ILO Global Wage Report† In many instances, wages in the informal sector are low because the underlying productivity of workers and the enterprises in which they work are too low to allow for the payment of higher wages.

To be truly effective, wage policies should be accompanied by measures to reduce informality and increase the productivity of enterprises. The Transition from the Informal to the Formal Economy Recommendation, 2015 (No. 204) provides guidance to facilitate that transition.

‘Share prosperity with decent jobs and just wages’

Sharan Burrow, General Secretary, International Trade Union Confederation

The world has quadrupled its wealth in the last 40 years, yet labor income share continues to decline. Inequality is at historic levels and is creating despair and anger as the majority of the world’s workers struggle to live with dignity on the wages they earn. This is also undermining global demand and creating distrust in governments. When prosperity is shared with minimum living wages which are based on evidence and collective bargaining, along with universal social protection, both workers and businesses win.

The pandemic exposed the low pay of essential workers, the majority of whom are women. And the slump in global demand has shown the vulnerability of global supply chains driven by poverty wages and dehumanizing exploitation. The central question is why do we create wealth if we are not prepared to share it? A resilient economic model must be built on jobs and just wages.

This article was written in collaboration with the Global Future Council for Work, Wages and Job Creation.

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