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

  • The World Economic Forum put wages in the spotlight at its annual meeting in Davos.
  • The ILO finds that the COVID-19 crisis has put downward pressure on wages in two-thirds of all countries, and where there was upward pressure, earnings 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 has put downward pressure on wages. To research from the International Labor Organization reports 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, salaries are lower for women than for men. Despite the fact that men make up the majority of the workforce in the United States, women form the majority low-wage labor. The same is true for most countries, as the World Economic Forum Global Gender Gap Report 2021 explains, and the impact of the pandemic has set back progress in closing this gender gap by 36 years.

Image: The gap between productivity and wages, Economic Policy Institute

While the vast majority of countries around the world have minimum wage policies, these policies are not always adhered to; approximately 266 million employees earn less than minimum wage, either due to ineligibility or non-compliance. Moreover, minimum wages do not always reflect a living wagewhich means that the minimum wage does not allow workers to meet their basic needs.

Businesses and governments benefit from the payment of fair wages. To research suggests that raising the minimum wage can reassign workers to more productive establishments. It can fight poverty and social inequality and stimulate economic dynamism. Additionally, it can help demonstrate commitment to building more prosperous and fulfilled societies by aligning with environmental, social and governance (ESG) indicators and stakeholder capitalism metrics.

The importance of ensuring fair wages is increasing; as inflation rises, spurred by soaring food and energy prices, the typical worker has less purchasing power today than a year ago.

How can governments and companies ensure that fairer wages are provided to 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 to give their opinion.

“Disclose all performance indicators and other indicators relevant to determining compensation”

Anna Thomas, Director, Institute for the Future of Work

Fair compensation, under clear and transparent conditions, is fundamental to building a future of better work. To research shows that some companies can use predictive analytics in recruitment and management to reduce worker compensation. This goes against the principle of a fair wage in the Good Work Charter and hinders negotiations around a fair wage. To maintain and demonstrate their commitment, companies should disclose all performance metrics and other metrics relevant to determining compensation, whether or not automated decision-making systems are involved.

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

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

Leaders can offer fairer salaries by implementing a progressive salary model. A progressive salary model is a three-in-one tool for balancing strategic development, productivity improvement and career development with progressive salary increases. The model works by setting wages based on the skill level of the worker while providing ongoing training so the worker can become more highly skilled and better paid over time.

It is a method that is suitable for both workers and companies; 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 introduced in Singapore in 2018 in essential service sectors like cleaning, landscaping and security, and it has expanded to other sectors during the COVID-19 pandemic.

“Ensuring access to services”

Bettina Schaller, Group Public Affairs Manager, The Adecco Group

Never before has the focus on providing wages and fair wages in particular been so strong. Discussions and negotiations on the development and optimization of wage policies will intensify in the wake of rising inflation and price levels around the world.

The Adecco Group not only focuses on meeting the applicable wage standards of workers in each country where it operates, reflecting different levels of education, skills and work experience as well as rewarding individual and collective performance, but on ensuring access to benefits such as funding for training measures whenever possible. In many countries and sectors, wages are set by collective agreements supplemented by access to sectoral social funds which provide additional injections.

Fair wages are defined by many dimensions. Our goal is to integrate into wage setting the local understanding 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

Setting a minimum wage is an important piece of legislation to reduce worker exploitation, but minimum wages do not always reflect the cost of living. What is needed is respect for a living wage.

A living wage is a national or regional calculation to enable a decent standard of living. While most countries have a minimum wage set by law 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 while continuing to recognize the right to freedom of association and collective bargaining, and understanding that living wages are the floor – not the ceiling.

“Put workers at the center”

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

The COVID-19 crisis has 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 – especially the most vulnerable – must be at the heart of corporate decision-making and public policy. A new human-centered economic model is needed to prevent the concentration of wealth in the hands of a few at the expense of many. The Self-Employed Women’s Association (SEWA) speaks of “building an education economy”.

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

“Introduce a combination of wage policies and measures to reduce informality”

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

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

However, one of the most important challenges to respecting minimum wages is a high incidence of informality, as identified in the last ILO Global Wage Report. In many cases, wages in the informal sector are low because the underlying productivity of workers and the enterprises in which they work is too low to allow the payment of higher wages.

To be truly effective, wage policies must be accompanied by measures aimed at reducing informality and increasing enterprise productivity. The Transition from the informal to the formal economy, 2015 (No. 204) provides tips to ease this transition.

“Sharing prosperity with decent jobs and fair wages”

Sharan Burrow, General Secretary, International Trade Union Confederation

The world has quadrupled its wealth over the past 40 years, but the labor income share continues to fall. Inequality is reaching historic levels and sparking despair and anger as the majority of the world’s workers struggle to live in dignity on the wages they earn. It also undermines global demand and creates mistrust in governments. When prosperity is shared with living minimum wages based on evidence and collective bargaining, as well as universal social protection, workers and companies win.

The pandemic has exposed the low wages of essential workers, the majority of whom are women. And the fall 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 ready to share it? A resilient economic model must be built on fair jobs and wages.

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

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