Living wages in the supply chain: From aspiration to action
Tomas Novotny
Solutions Expert
28 Aug 2025
About 6 mins
One-third of all workers globally, that’s one billion people, aren’t earning enough to cover basic living costs. This staggering statistic, shared during Sedex’s recent community webinar with IDH on living wages, underscores why responsible sourcing has evolved far beyond compliance checkboxes to become a cornerstone of sustainable business strategy.
But here’s what might surprise you: the journey towards living wages isn’t just about doing the right thing. It’s about building resilient supply chains, protecting brand reputation and unlocking new sources of financing in an increasingly sustainability-focused investment landscape.
What exactly is a living wage?
The International Labour Organisation’s landmark 2024 definition provides clarity: a living wage is “the wage level that is necessary to afford a decent standard of living for workers and their families, taking into account the country circumstances and calculated for the work performed during normal hours of work.”
This differs fundamentally from minimum wage, which often falls short of covering essential needs. As Sonia Cordera, Director of Market Engagement at IDH, explained during the webinar: “From the calculations we have been doing across different countries and sectors, we have been seeing that significant gaps exist even in those countries that have minimum wages. The minimum wage is not a guarantee that workers are able to meet their essential needs.”
“The minimum wage is not a guarantee that with that wage a worker is able to meet their essential needs. And again, we are talking about essential needs, not a high-level style of living.”
Sonia Cordera, IDH
Source: IDH
The business case for living wages
Supply security and operational benefits
Companies implementing living wage initiatives report reduced turnover, improved productivity, and better quality specifications. Workers earning living wages are more likely to remain in their roles and invest in developing sector-specific skills.
Reputation and market positioning
Enhanced brand value, stronger customer loyalty, and increased market share are tangible benefits. In today’s consumer landscape, companies demonstrating genuine commitment to worker welfare can command premium positioning.
Financial advantages
Access to sustainability-focused financing is becoming increasingly important. Companies able to provide verified data on living wage progress are finding more favourable financing terms and unlocking new investment sources.
- 630 million people around the world earn less than $3.20 per day, whilst the richest 1% accumulated 45.6% of global wealth in 2021
Source: IDH
The roadmap: Five practical steps forward
1. Identify credible living wage benchmarks
The good news? You don’t need to calculate living wages yourself. Organisations like Wage Indicator (covering 173 countries) and the Global Living Wage Coalition provide free, credible estimates. IDH’s Benchmark Finder tool helps companies identify recognised methodologies for their specific regions.
2. Measure your living wage gaps
This involves comparing current worker remuneration—including wages, bonuses, and in-kind benefits—against the living wage benchmark. Tools like IDH’s Salary Matrix provide free, sector-agnostic support for this complex calculation process.
3. Verify your data
Companies typically require verified data before committing financial resources. Options include third-party social audits using SMETA, specialised organisations like the UK Living Wage Foundation, or IDH’s auditor training programme.
4. Close the gaps strategically
This is where collaboration becomes crucial. “It’s not any single actor in the supply chain that can solve the subject on its own,” emphasised Cordera. Success requires action across four pillars:
- Better procurement practices: Pricing, premiums, and longer-term contracts
- Enhanced supplier operations: Productivity, profitability, and quality improvements
- Social dialogue: Worker engagement and collective bargaining agreements
- Government infrastructure: Supporting policy frameworks and social protections
5. Share learnings
Documenting and sharing experiences help the entire industry move faster towards impact.
Source: IDH
Real-world success stories
European retailers are leading by example. In the banana sector, companies across Netherlands, Germany, Belgium, and the UK have committed to closing living wage gaps by 2027.
- LIDL implemented voluntary contributions to producers, distributing support to workers through food vouchers.
- ALDI South adopted an open costing approach with three-year contracts instead of annual agreements.
- Sainsbury’s committed to paying Fairtrade Living Wage Reference Prices with four-year supplier contracts.
The UK’s collective banana commitment shows impressive scale: 489 salary matrices across 554 farms, covering 522,000 tonnes (84% of total supply chain) across 12 countries. The data revealed that 63.2% of farms had living wage gaps, affecting 30.8% of workers.
Overcoming common challenges
“We can’t ask about family circumstances”
A frequent concern, particularly in jurisdictions with strict privacy laws. The solution is simpler than many realise: you don’t need individual worker data. Living wage benchmarks already account for average family sizes in each region.
“One buyer wants action, but we need broader support”
Start conversations with other buyers about collaborative approaches. Even partial support, such as voluntary contributions proportional to purchase volume, can begin closing gaps whilst encouraging broader industry engagement.
“This feels overwhelming”
Begin with basic gap analysis using available tools. “It doesn’t have to be perfect,” noted Claire Fitton from Sedex’s SMETA team. “The auditors will be assessing whether the basic things have been done and whether it’s broadly correct.”
How SMETA supports living wage progress
Sedex’s SMETA 7.0 standard now includes specific living wage requirements, but with a measured approach that recognises the complexity involved. Rather than mandating immediate living wage payment, SMETA requires:
- Selection of a credible living wage benchmark
- Gap analysis comparing current remuneration to benchmark
- Development of improvement plans outlining next steps
This generates valuable data for buyers to prioritise interventions. Countries like Bangladesh and Pakistan consistently show the lowest percentages of sites paying above minimum wage, whilst piece-rate payment systems often indicate higher wage vulnerability, particularly affecting women workers.
Getting started: Your next steps
1. Assess your current position: Use tools like IDH’s Benchmark Finder to identify relevant living wage estimates for your sourcing regions
2. Conduct gap analysis: Implement salary matrix tools to understand your current position versus living wage benchmarks
3. Engage stakeholders: Start conversations with buyers, suppliers, and industry peers about collaborative approaches
4. Leverage existing frameworks: Use SMETA assessments to gather baseline data and identify priority areas
5. Plan for verification: Consider how you’ll validate progress through recognised auditing or certification schemes
The path forward
Living wages represent more than an ethical imperative, they’re a strategic investment in supply chain resilience and business sustainability. The tools, methodologies, and collaborative frameworks exist to make meaningful progress.
“System change is fundamental,” concluded Cordera. “It’s important to link market demand with advocacy work at buying and producing levels, and with multilateral institutions to support the necessary enabling environments.”
For companies ready to move beyond aspiration to action, the roadmap is clear. The question isn’t whether to begin, but how quickly you can start building the partnerships and processes that will define responsible sourcing in the years ahead.
To learn more about how Sedex tools can support your living wage initiatives.
For more information about IDH visit https://idh.org/ or you can contact them directly via email livingwage@idhtrade.org
