Impact Voices | May 20, 2024

How raising pay for retail employees can strengthen the global economy and portfolio performance

Sara Murphy

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Guest Author

Sara Murphy

Around the world, as many as 214 million workers live in poverty, unable to meet their families’ basic needs because their wages fall short of the cost of living. Income inequality has continued to grow in recent decades. The statistics become starker when accounting for race, with white households holding 80% of all wealth measured in assets in 2022. 

How can we close this wealth gap and ensure that everyone can afford their most basic needs?

Beyond government policies and support, which can take years to materialize even in a high-functioning regulatory environment, investors need to leverage their power and corporate governance rights to insist that companies pay a fair wage.

In the United States, the federal minimum wage is $7.25 per hour, or about $15,000 per year for a full-time worker. A true living wage—one sufficient to pay for food, shelter, clothing, and other basic needs—is closer to $25 per hour. Despite recent contract wins for US employees, these efforts haven’t been enough to keep the lowest wages on par with inflation. 

Dismal pay has a negative impact on productivity. Poor nutrition, sleep deprivation from working multiple jobs, and other health conditions correlated with poverty decrease performance – to the detriment of corporate bottom lines.  Increasing pay by just 1% could translate to a 1% increase in productivity. Because low-wage workers spend a high percentage of any additional wages they receive, the economy would benefit from increased demand.

An estimated $674 billion wage gap separates workers living in poverty from financial independence. Investors stand to gain even more from closing it, which would add $4.56 trillion per year to the global economy by increasing productivity and demand.

To do so, companies will need to stop prioritizing profits over the health of the global economy. Asset managers have historically encouraged corporate executives to protect and increase enterprise value at all costs, including by maintaining low employee wages while increasing workloads to stretch margins. Yet low wages have a cost that is passed on to investors because the negative impact on the global economy reduces the value of diversified portfolios. 


This strategy of pushing individual companies to profit from poverty wages ultimately wastes human capital and harms the diversified portfolios owned by most investors, because the inequality perpetuated by low pay threatens national and global economies with losses that will burden investment portfolios for years to come. 

Closing the living wage gap worldwide could lead to a more than 4% increase in global GDP. The growth in GDP would greatly benefit the average investor because, over time, the value of a diversified portfolio of investment securities moves in proportion to the economy’s intrinsic value. That’s because owning such a portfolio is essentially owning a piece of the economy. 

Put another way, the negative economic impact of poverty wages is therefore absorbed by the majority of investors who hold diversified portfolios. Business models that rely on low wages drag down the economy – and investment portfolios with it. 

For these reasons, shareholders with a cumulative $1.5 trillion in assets have filed shareholder proposals at Walgreens, Walmart, Target, and Kroger to pay a living wage. Shareholders can and should vote for these proposals during the upcoming proxy season to optimize their diversified portfolios.

Income inequality

In addition to portfolios, high rates of income inequality are also destabilizing for the economy. Walter Scheidel’s 2017 book, “The Great Leveler,” described how four violent forces – mass mobilization warfare, transformation revolutions, state collapse, and (with eerie prescience) lethal pandemics – have periodically slashed inequalities by altering existing power structures or wiping out the wealth of elites and redistributing their resources. Such leveling forces become increasingly inevitable as inequality grows.

There are two reasons why low wages may persist despite the clear benefits to instituting a living wage. First, company executives incentivized by stock options can use extractive, low-wage strategies to boost their own bottom lines without regard to the catastrophic costs of income inequality for which they are responsible. 

Second, investment managers with concentrated portfolios who load up on such businesses appear to beat the market for their clients. In reality, they are bringing down the overall return on investments, especially for diversified investors, by rewarding low-wage companies for their extractive practices. 

Even for concentrated portfolios, the truth is that the overall direction of the market has a much stronger effect on absolute portfolio performance than does security selection.

The shareholder proposals pushing for a living wage at Walmart, Target, and Kroger have yet to come to a vote. Thus far, shareholders owning more than 56 million shares at Walgreens Boots Alliance have voted in favor of the proposal, totaling at least 13% of voted shares held by non-insiders. This result is significant, as investors are often hesitant to back any proposals focused on changing corporate practice.

The end of extractive practices including poverty wages can protect both workers and diversified portfolios. By using stewardship strategies that support no-vote campaigns and beneficial shareholder proposals, investors can help ensure the companies they own are paying living wages to everyone in their value chain.


Sara Murphy is Chief Strategy Officer of The Shareholder Commons.