Why living wages should be considered a driver of human capital value, not a cost
- 06 September 2023 (7 min read)
- After a decade of poverty reduction, COVID-19 and post-pandemic inflation have combined to erode real wages. Minimum wages now fail to reflect this reality
- Paying decent wages is a powerful tool in reducing poverty and a key pillar of the Universal Declaration of Human Rights. Living wages are also a bedrock for numerous UN Sustainable Development Goals
- Salaries can be considered as a cost but at the same time as an investment in human capital and social development
- Investors should consider the risks of structurally decreasing performance, costly strikes and potential financial losses as they engage with companies to promote living wages policies
“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.” Article 23 of the United Nations Universal Declaration of Human Rights.1
On the face of it, salaries and bonuses are a business cost – that’s how they appear on the income statement – and companies tend to want to reduce costs. But investors should note that ‘living wages’ which fairly value employees are best seen as investments in human capital that can help build resilience into supply chains, and the wider economy.
By following the fundamental principle of fair compensation, companies can ensure workers receive pay that is sufficient to meet their basic needs and lead a decent life. Fair wages can foster a sense of respect, empowerment, and loyalty in a workforce which, in turn, can translate into increased productivity, reduced turnover rates, and improved overall job satisfaction – which can potentially be beneficial for the bottom line, and for investors. Beyond the creation of a positive work environment, living wages have been shown to alleviate poverty, reduce income inequality, and enhance social mobility.2
This combination of effects can then foster economic growth, as financially secure individuals are better able to participate in consumer markets, stimulate local economies, and invest in their own personal and professional development.
- VW5pdmVyc2FsIERlY2xhcmF0aW9uIG9mIEh1bWFuIFJpZ2h0cywgVW5pdGVkIE5hdGlvbnMsIHJldHJpZXZlZCBKdWx5IDIwMjM=
- VGhlIExpdmluZyBXYWdlOiBhbiBlY29ub21pYyBpbXBhY3QgYXNzZXNzbWVudCwgTGl2aW5nIFdhZ2UgRm91bmRhdGlvbiwgSnVseSAyMDE1
Disclaimer
This website is published by AXA Investment Managers Australia Ltd (ABN 47 107 346 841 AFSL 273320) (“AXA IM Australia”) and is intended only for professional investors, sophisticated investors and wholesale clients as defined in the Corporations Act 2001 (Cth).
This publication is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Market commentary on the website has been prepared for general informational purposes by the authors, who are part of AXA Investment Managers. This market commentary reflects the views of the authors, and statements in it may differ from the views of others in AXA Investment Managers.
Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
All investment involves risk , including the loss of capital. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested.