Pursuing living wages for workers in global supply chains in times of inflation

Trade unions and civil society organizations have fought long and hard for living wages in global supply chains, but inflation and the rising cost of living exacerbate a precarious financial situation for many workers. In this blog article, Wilbert Flinterman, Senior Advisor Workers’ Rights and Trade Union Relations for Fairtrade International, asks: How can we keep  the goal of living wages from moving out of sight?

The living wage dilemma

Living wages, defined by Anker and Anker  as ‘[wages] that [cover] the basic needs of workers and their families, including food, clothing, shelter, healthcare, education, transport to work and a little extra for unforeseen circumstances,’ are considered by many a human right upon interpretation of the International Covenant on Economic, Social and Cultural Rights (1966). Much has been done in the past years to further the living wage agenda in global supply chains, outside of regular collective bargaining processes. This includes work in Asian garment sectors, driven by groups like the Clean Clothes Campaign and ACT on Living Wages, and activities in food and agricultural supply chains steered by industry convenors like The Sustainable Trade Initiative (IDH), standard setters such as Fairtrade International and others.

However, ensuring that their workers are being paid a decent wage may constitute a substantial cost to employers, particularly those whose business model is based on selling large volumes of low-priced product sustained by low wages. In many countries with low levels of productivity, legal minimum wages are kept low to attract foreign investment, but as a result, they are insufficient to support a decent standard of living. If then international campaigns and sustainability initiatives call for living wages in global supply chains, businesses may quickly reach their break-even point if buyers are not willing to pay more for products. With inflation rising worldwide and both costs of living and production costs increasing, is it then still realistic to expect that workers in global supply chains are being paid living wages? After all, when companies make less profits, jobs may be at stake, and living wages depend on people remaining employed. In other words, should the pursuit of living wages be so rigid if that means  job losses, potentially pushing workers and their families deeper into poverty?

Clearly, insisting on the basic right of workers and their families to enjoy a decent standard of living from the gains of employment does not mean disregarding economic conditions. What matters is making demonstrable progress on a pathway towards living wages, which is best achieved by wage setting through a collective bargaining process between companies and organized labour. But can we adapt a pathway towards liveable wages to a receding horizon? Living wages are not static and ride on fluctuations in costs of living. During times of inflation, wages need to rise to ensure workers can still afford daily necessities. Without compensation for inflation, workers’ purchasing power drops and any gap with the living wage widens.

The need for wage-setting institutions

The presence of trade unions in a sector generally drives wages up, even in companies that are not unionized. Trade unions understand better than most the importance of negotiating agreements with employers that include consumer price indexation of wages, along with additional increases to strengthen purchasing power. For employers, compensating workers for inflation does not always mean higher labour costs. Often, costs of living rises due to depreciation of local currency, which may have only a minor effect on producers trading in global supply chains and gaining their revenue in foreign currency. When revenue is earned in stronger currencies like dollars or euros, exchange rates may  very well balance out wage increases paid out in local currency. Although that scenario is not always the case, the automatic assumption that raising wages is always costly to companies in export sectors must be avoided to assess their capacity to pay.

Employers may struggle to keep up with increased costs of production, especially when combined with falling demand in markets where consumers also face rising costs of living. However, the extent to which wage adjustment lags behind inflation will greatly depend on effective wage-setting institutions, like collective bargaining and regular adjustment of statutory minimum wages in line with the cost of living. Unfortunately, those institutions do not tend to work well in many countries where the rule of law is weak and trade union rights are not protected, either in law or in practice. Also, bargaining power of unions may be impeded for a variety of reasons, such as low unionization rates, legal barriers to acquiring the right to bargain or the right to strike, a lack of bargaining capacity or a fragmented labour movement. Besides that, governments may be reluctant to aggressively adjust minimum wages out of concern that it may scare off investment or undermine their own budgetary situation —as they are often among the largest employers in their country. Those conditions are conducive to companies with a business model predicated on low wages and may even attract them.

It must be clear that any attempt to address the problem will need to be informed by the legal, social and economic context in which wages are set. Levers such as improving quality, productivity and economic upgrading are well known. Others strategies include promoting responsible sourcing practices and strengthening of local wage-setting institutions.

Living wages as a human right

In the last few years, principles of responsible business conduct have been introduced into hard law in several major markets for global supply chains, culminating in the EU adoption of the corporate sustainability due diligence directive (the so-called CS3D) in 2024. This directive, which will be transposed into the national laws of EU member states in the coming years, recognizes living wages as a human right (see footnote 2) and requires that companies take action on human rights issues in their supply chains.

In taking action, companies must consider if they cause, contribute to, or are linked to negative impacts on human rights. That could mean improving sourcing practices, such as contracting and price setting practices to strengthen the ability of suppliers to pay better wages. It could also mean exerting influence on their suppliers to ensure respect for trade union rights and commitment to bargaining in good faith. Another approach might involve paying their suppliers a price premium designated as income support for workers.

The role of not-for-profits

Some companies, especially retailers stocking thousands of products in a similar number of supply chains, turn to not-for-profits like Fairtrade International for support, a voluntary standards system that has promoted equitable value distribution in global supply chains over the past 30 years. It has been successful in improving economic stability for producers of agricultural products by requiring buyers of Fairtrade-labelled products to pay a fixed minimum price. Representatives of Latin American banana companies, for example, have called for the Fairtrade minimum pricing approach to become an industry standard. Producers and exporters organisations believe that receiving an amount similar to the annually adjusted Fairtrade minimum price for their banana, would improve their ability to meet sustainability demands of market partners including the payment of Living Wages to workers. Fairtrade minimum prices for banana are set to account for the costs of sustainable production, including costs incurred from complying with Fairtrade’s requirement that certified banana plantations must pay at least 70% of the relevant living wage to their workers. This requirement, known as the Fairtrade Base Wage, is calculated using living wage estimations conducted by the Anker Research Institute and endorsed by the Global Living Wage Coalition, which Fairtrade co-founded.

Additionally, companies sourcing Fairtrade products must also pay Fairtrade premiums — either a fixed amount or a percentage of the market price — managed by farmers and workers. Workers often invest these premiums in housing repairs, education, and health services, freeing their own wages for other expenses. Part of the premium can also be received in cash to help cover daily expenses.

In 2023, Fairtrade also introduced living wage reference prices for banana from certified plantations. This price point adds a living wage differential to the Fairtrade minimum price and is an optional tool for buyers of Fairtrade bananas wanting to do more to support workers’ incomes in the absence of living wages.

The increased attention to finding solutions for inadequate wages in supply chains has led to recognition of Fairtrade’s tools as useful pieces of the puzzle. An organization like Fairtrade can help put more money in the pockets of workers by promoting better purchasing practices in global supply chains.

From human right to entitlement

Many employers inserted in global supply chains are reluctant to raise wages of their workers without the assurance of stable revenue from long-term business relationships. That is understandable, since in many agricultural supply chains orders are placed and prices are negotiated annually. Therefore, there is a common concern that to meet sustainability demands they raise wages that they won’t be able to sustain when customers reduce their sourcing commitment. Therefore from producers’ side there is often a preference for volume-based sustainability contributions from buyers such as Fairtrade living wage differentials. Workers and their families welcome the bonuses received from such payments that add to their household budget. Yet, whilst meaningful these benefits do not offer them the same economic security as a wage increase.  Ultimately, living wages, in addition to being a human right, must become remuneration that workers can claim under local laws, whether through collective bargaining agreement or statutory minimum wages.

Whether this happens will depend on many stars aligning, hopefully leading to enterprises with more sustainable business models and more effective wage-setting institutions protected by the rule of law. Importantly, retailers in the markets of internationally sourced products must adopt coherent sourcing policies that enable producers to pay workers a Living Wage. Paying a fair price is key. Last but not least, conscious consumers have a role to play by asking for Fairtrade products in their local supermarkets. Each purchase improves the ability of workers or small-scale farmers to cope with higher costs of living.

Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.

About the Author

Wilbert Flinterman is a global expert on labor conditions in supply chains, with a focus on advancing workers’ rights and fostering constructive trade union relations. Trained in Decent Work principles and mediation at the International Labour Organisation (ILO), Wilbert combines strategic thinking with a practical understanding of global labor dynamics. His work bridges the gap between policy and practice, addressing systemic challenges in global supply chains while advocating for sustainable labor practices. With a commitment to equity and collaboration, Wilbert continues to contribute to the discourse on labor rights in an interconnected world.

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