Another Radical Sustainability Idea: Pay Employees at Least a Fair Living Wage

fair wageHere is another breakthrough corporate CSR idea; How about paying employees at least a fair living wage? My last blog suggested A Wild and Crazy Corporate CSR Idea: Pay Your Taxes.

At the risk of being overly innovative by simply stating the obvious, I humbly suggest a second breakthrough corporate social responsibility (CSR) program: pay all employees at least a Living Wage. Otherwise, corporations may be setting themselves up for public embarrassment, like the report that went viral last October about how McDonald’s US pays its workers below-poverty-line wages while its “McResource” employee help line encourages them to use food stamps and government assistance to make ends meet. That is, McDonald’s wants the government (a.k.a. tax-paying citizens) to top up their paltry workers’ wages. Awkward. McDonald’s has since discontinued its McResource.

To understand the context for my wage proposal, I need to clarify three terms that usually are confused or abused in debates about wage levels: “poverty wage,” “minimum wage,” and “living wage.”

According to the World Bank, people living below the poverty line experience a pronounced deprivation in well-being. The excellent Canadian Centre for Policy Alternatives (CCPA) 2013 report, “Making Every Job a Good Job,” shows that a poverty wage for a single individual working full-time in Ontario is any wage that is below $13.54/hour. The poverty line is periodically recalculated and usually stirs methodology debates when it is updated. It influences government social policies.

On the other hand, a minimum wage is mandatory. It is the lowest wage that employers must legally pay to workers. A minimum wage calculation is based on employer affordability, not worker needs. Shockingly, in most jurisdictions, a full-time minimum wage worker earns below the poverty line. For example, the minimum wage in Ontario was frozen at $10.25/hour from 2010 to 2013. That wage yielded an annual income that was 21% below the poverty line. The Ontario government is committed to raise the minimum wage by 75¢ to $11.00 effective June 1, 2014, indexed to inflation from now on, but that is still16% below the poverty line.

Anti-poverty activists and unions in Ontario wanted the minimum wage increased to $14. The CCPA report, mentioned above, proposed a minimum wage of $14.50/hour, equivalent to 60% of the average Ontario industrial wage, which is a policy goal in Europe. For a single person living alone, to earn enough to rise above the poverty line by 10%, the minimum wage would have to be $14.89 in Ontario. It looks like a fairer minimum wage would be in the $14 to $15 range.

Finally, a living wage is calculated based on what one must earn in order to support a decent quality of life for a family of four. It includes provisions for basic needs such as rental housing, food, clothing, child care, transportation, and medical expenses. It is by no means a “luxury” wage – it makes no allowance for saving for retirement, a child’s post-secondary education, or emergencies like the cost of caring for a disabled or ill elderly family member. The living wage varies by city. For Toronto, Kingston, and Hamilton, the living wage in 2013 was $16.60, $16.29, and $14.95 respectively.

Note that my suggestion is not that companies pay their employees only a living wage; it is to pay them all at least a living wage. I want to reassure executives that it is okay to pay some employees above that level.

So, to review the hourly wage spectrum in Ontario:

  • Minimum Wage: $11.00
  • Poverty Wage: Any wage below $13.54, like the Minimum Wage
  • Fairer Minimum Wage: $14-$15
  • Living Wage: $16.60 in Toronto

A living wage would not only have a positive effect on employee well-being, which improves productivity and reduces employee turnover; it also would increase the buying power of citizens, which is good for the economy and the company itself. Minimum wage and living wage earners are more likely to immediately spend their money locally on essentials, pumping it back into the economy rather than stashing it in an off-shore tax haven. In 2011, the last year for which statistics are available, 9% of Ontario workers earned minimum wages. That’s almost 1 in 10 people who would immediately stimulate the economy if they had more to spend.

This is the concept of wage-led economic growth. You’d think that the business community would be all over this. Instead, they paradoxically fight any increase in minimum wage claiming that it would lead to layoffs because employers could no longer afford their payroll. There is no evidence that this happens when minimum wages are increased. At worst, the above CCPA report quotes research which found that increasing the minimum wage might lead to a 3%–6% decrease in the growth of employment opportunities for teenagers.

What’s all this got to do with CSR? To show that they are good corporate citizens, companies donate money, in-kind resources, and volunteers’ time to the community. Their sincere intent is that the impacts of these efforts will improve the well-being of the community. It would be ironic if the company proudly contributed to a local food bank only to discover that their, or their suppliers’, underpaid employees have to regularly use it just to feed their families.

Big corporations like McDonald’s are big targets for critics. McDonald’s supports youth sports, mentorships, and local charities, which is all good. But wouldn’t it be great if the next article about McDonald’s CSR efforts in the Wall Street Journal congratulated McDonald’s for paying its taxes, for paying its employees at least a living wage, and only using suppliers that do the same? Compared to the corporate norm, that would be exciting news and would show that the company was building brand value by supporting communities in ways that matter most.

So I humbly suggest a three-stage CSR program for large corporations.

  1. Pay taxes on revenue in the jurisdiction in which it was really earned, as suggested in my last blog.
  2. Pay all employees at least a living wage for the jurisdiction in which they work, and only use suppliers that do the same.
  3. Then, do worthy philanthropic extras to build more social capital in local communities.

Or is this CSR strategy so mundane that it is too radical?

This article was originally published on Bob Willard’s personal blog
Bob Willard is a leading expert on quantifying and selling the business value of corporate sustainability strategies. Please click here to visit his website and/or follow on twitter