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DA6. Ethical Duty to Pay a Decent Living Wage

Statement

Please read the case study “Falling Out of the Middle Class” from chapter 8 of the Business ethics textbook that you find in the reading assignment.

Based on what you have learned in this unit, answer the following questions:

  • Does a company have an ethical duty to find a balance between remaining profitable and paying all workers a decent living wage? Why or why not?
  • Who decides what constitutes a fair wage?
  • How would you explain to a board of directors your decision to pay entry-level workers a higher wage than required by law?

Answer

The middle class is the backbone of the economy, it is an indicator of the economy’s health; a good economy signals a strong middle class, and vice versa. Usually giving salaries beyond the living wage keeps people in the middle class (Byars & Stanberry, 2018). The living wage is compensation for a standard work week that is sufficient for the worker and their family to afford essentials, and non-luxury items, with some provision for unexpected events (Barford et al., 2022).

Yes, a company has an ethical duty to find a balance between remaining profitable and paying all workers a decent living wage. From a moral standpoint, employees are stakeholders in the company, and the company has a moral obligation towards all its stakeholders; another perspective is that employees are the company, and when the company does well, the employees should also do well. From an economic standpoint, paying a living wage has numerous economic benefits to the company, the employee, and the economy at large.

The decision of what constitutes a fair wage is usually a political issue; the legislative bodies of every country decide what the minimum wage that a company should at least pay for every worker that it employs; usually, legislators take into account the cost of living, inflation rate, and other economic indicators while making the decision. However, the living wage is usually higher than the minimum wage, and it is determined by more factors that vary across industries, job roles, and locations (Barford et al., 2022). Market dynamics play a significant role in determining the living wage; for example, if there is a shortage in a specific skill set, the living wage for this group will be higher than for another group that is saturated with people.

Paying entry-level workers a higher wage than required by law means paying a living wage that is higher than the minimum wage. This decision has numerous benefits beyond the employee and the company, to the economy itself. (Barford et al., 2022) lists lots of these benefits, but this text will include a few of them:

  • Worker retention: this has a direct impact on the company as it reduces the cost of hiring, training, and onboarding new employees; and also ensures that the company has a skilled workforce.
  • Worker productivity: when employees are paid well, they become more motivated, satisfied, rested, healthier, and more focused on their work; this has a direct impact on both the company and the employee.
  • Stronger supply chain: If all companies pay well, the supply chain will be stronger, as all employees will be more productive and motivated; this has a direct impact on the entire economy.
  • Loyalty and trust: Employees when paid well will have less incentive to engage in unethical behavior, and have no compelling reasons to side against the company; this has a direct impact on the company and the employee.
  • Company reputation: A company that pays well will have a better reputation that attracts good employees, customers, and investors; this has a direct impact on the company and the employee.

To conclude, paying a living wage is both an ethical and economic decision that has numerous benefits to the company, the employee, and the economy at large. Although legislators set the minimum wage, it is recommended that all companies go beyond this and pay a decent living wage, otherwise, they may not find enough people to afford their products and services (Byars & Stanberry, 2018). Entry-level workers are future seniors, so companies should treat everyone as such to ensure they don’t lose a strong candidate to a competitor.

References

  • Barford, A., Gilbert, R., Beales, A., Zorila, M., & Nelson, J. (2022). The case for living wages: How paying living wages improves business performance and tackles poverty. Business Fights Poverty, University of Cambridge Institute for Sustainability Leadership, and Shift. https://doi.org/10.17863/CAM.80370
  • Byars, S. M., & Stanberry, K. (2018). Ch. 8 Introduction - Business Ethics | OpenStax. Openstax.org; OpenStax. https://openstax.org/books/business-ethics/pages/8-introduction