Today, it’s estimated that over a billion workers worldwide – about 1/3 of the global workforce –earn less than they need to afford a decent standard of living. A living wage is defined by the International Labor Organization (ILO) as a level of pay that gives workers and their families a decent standard of living. This includes the ability to afford essential needs such as food, water, housing, education, health care, transportation, clothing, and the ability to handle unexpected expenses.
Implementing a living wage, however, is challenging, particularly across diverse economic contexts. One promising solution to contribute to the living wage agenda is transitioning to digital wage payments, which offer greater transparency, security, and data accuracy for both workers and businesses.
Digital wage payments have the potential to stabilize incomes, increase earnings, and improve the financial security of workers.
Cash payments are susceptible to errors and exploitation. Digital wages, on the other hand, bring transparency to financial transactions, enabling both companies and workers to monitor wage payments accurately. This leads to fewer mistakes and lowers the use of redressal mechanisms as workers are compensated in full and have a more stable income to support their essential needs.
In addition, the traceability of digital wages reduces vulnerability to theft and exploitation, particularly for women. This enhanced security can boost worker morale and increase productivity leading to higher earnings and a better standard of living.
The Social & Labor Convergence Program (SLCP) 2023 Impact report, highlights those facilities using digital payment methods demonstrated lower legal non-compliance, particularly in ensuring timely wage payments and proper social security contributions. With more timely and regular payments workers can more accurately manage household cash flow and plan for time-specific obligations such as utility bill payments or loan repayments. This can potentially increase worker financial stability and reduce dependence on additional borrowing, which can lead to being more financially secure in dealing with emergency payments.
Digitized wage management systems provide new data insights with the potential to empower workers financially.
Companies gain access to accurate records of wage transactions, which are essential for analyzing trends, identifying disparities, and developing effective strategies to support living wage practices. For example, H&M initial findings show that their wage management systems contributed to decreasing gender pay disparities in factories.
This wealth of financial transaction data is crucial during the initial stage of living wage agenda adoption. But these records also have the potential to financially empower workers in accessing more tailored financial services, such as long-term savings options, insurance, and responsible loan products, in support of a decent standard of living.
We are calling on industry leaders to recognize the transformative potential of digital payments in ensuring fair wages and promoting economic equity.
In 2021, approximately 165 million private sector workers without bank accounts were paid exclusively in cash. That same year, a study revealed that two-thirds of garment workers in Jordan continued to receive their wages in cash, despite the industry accounting for approximately 23% of the country’s total domestic exports.
As the UN-based Better Than Cash Alliance continues to build evidence on the contribution of digital wage payments to living wages, we invite leaders in the private sector to share their experiences of living wages and digital payment system initiatives. We also welcome organizations interested in providing workers with access to additional digital financial services to collaborate with us in developing industry guidance for a responsible approach to keeping wages digital.
Authors:
Jean Pascal Mvondo, Francophone Africa Lead, UN-based Better Than Cash Alliance
Samer Bakeer, Digital Payments Specialist, UN-based Better Than Cash Alliance
Katherine Rickard, Corporate Digital Payments Specialist, UN-based Better Than Cash Alliance
