Income disparity is one of the starkest indicators of our societal failures to foster a more equitable society and as a result, a more dynamic economy. In the United States 95 million workers have limited workplace flexibility and mobility, low collective bargaining ability, and minimal (if any) health and financial benefits. They also experience the highest exposure to workplace health and safety hazards, job stress, employment volatility, and exploitation. Even full-time employees earning $15 per hour—about $32,000 USD per year— do not earn the income needed to cover basic needs.

Since higher wages and benefits are amply shown to improve workplace and employee outcomes, investors want to know how companies balance the benefits of higher pay—lower turnover, higher worker effort, and enhanced recruitment and retention— against the direct costs of higher compensation.

As executive compensation soars and quarterly shareholder returns grow, disparities in pay have local impacts that are costing investors and communities. For example, analysis of wage changes for warehouse workers at a county-level, before and after Amazon’s arrival in those counties, reveals that average earnings for Amazon warehouse workers are lower there than in counties where Amazon does not operate. Further, large retail, tech, and manufacturing operations increasingly hire temporary workers from third-party staffing agencies, exacerbating economic disparities among direct and indirect employees performing similar work.

Improved wage policies and practices would also reduce reliance on government subsidies. For example, results from the largest independent survey conducted of retail workers at Kroger grocery stores reveals that nearly two-thirds of workers say earnings are insufficient to pay for monthly basic expenses. Among the workers who are unable to afford necessities, 44 percent are unable to pay for rent and 39 percent say they are unable to pay for groceries. Should the mega merger with Albertson’s materialize, the employer concentration in local labor markets would likely result in lower wages and fewer working hours.

When “workers cannot meet their families’ basic needs, the entire economy suffers. And when the economy suffers, investors lose.” Suppressed wages create a systemic, global risk for the economy by putting downward pressure on the value and value creation, which in turn affects investment portfolios. Income-based inequality drives increased political polarization, which weakens trust in public institutions and undermines democratic processes, making pay inequity a relevant societal and public policy issue.

Poverty wages impact numerous human rights including the right to organize and to safe and favorable working conditions. These impacts are compounded at the intersection of race/ethnicity and gender, where pay inequity hinders the economic participation of the most overrepresented segment of the low-wage workforce, Black and Hispanic women.

Workers at the front lines contribute significantly to building tangible and intangible shareholder value. Companies have not gone far enough to mitigate the costs they externalize on the wider economy from poor pay practices. With the clear advantages of a diverse and resilient workforce, insight into long-term living wagesetting practices is a rational step.

Marcela Pinilla
Director of Sustainable Investing