In 2024, French tire manufacturer Michelin made an important announcement: going forward, it would pay all employees a ‘decent wage’. The idea was simple: Michelin wanted to make sure none of its workers were struggling to make ends meet — wherever they were based.
And they’re not alone: a small but growing number of companies are now committing to pay at least the local living wage (not just the minimum wage) to all employees, even those at the bottom of the ladder.
And these businesses are not just thinking of their employees when they make this decision — paying a living wage has some concrete benefits for employers too. We’ll explore 10 of the most compelling reasons to pay a living wage in this article.
Minimum wage vs. living wage
Most EU countries have a legal minimum wage, which is the lowest amount employers can pay their workers. But while this is a good start, minimum wages are often not enough to ensure a decent standard of living.
In many countries, they haven’t been adjusted for years — and they may not take into account the current cost of living or rate of inflation. That means that many workers earning the minimum wage live below the poverty line, particularly if they have families to support.
The living wage, on the other hand, is the amount needed to give workers and their families a decent standard of living. According to the official definition by the International Labour Organization (ILO), workers earning a living wage should be able to afford basic needs such as food, housing, healthcare, education, transportation and clothing, for them and their families.
Here are some of the differences between the minimum wage and the living wage:
Minimum wage
- The lowest legal pay rate an employer can offer.
- Designed to protect workers from exploitation.
- Set by national governments and may not be regularly updated.
- Often applies to the entire country or region.
Living wage
- The amount needed to afford a decent standard of living, covering basic needs for workers and their families.
- Ensures workers can meet essential needs without excessive overtime or multiple jobs.
- Based on local cost of living and frequently updated to reflect changes.
- Localised to reflect regional cost-of-living differences.
The legal minimum wage is often significantly lower than the living wage. For example, the current minimum wage in the UK is £12.21 per hour for workers aged 21 and over. However, according to the Living Wage Foundation, a charitable organisation set up to encourage more employers to pay living wages, the current ‘real living wage’ is £12.60 per hour across the UK and £13.85 in London.
10 reasons to consider paying a living wage in 2025 and beyond
Paying employees a living wage is not a legal obligation — but it is growing in popularity as a company policy. According to a 2023 PwC report, around a quarter of companies surveyed said they were already paying a living wage, and another 54% said they planned to do so in the next five years.
The question is… why? There are ethical reasons, of course — it’s clearly the fair thing to do. But there’s more to it. To make it easier to follow, we’ve divided the main reasons for paying a living wage into four categories: ethical and social, employee impact, organisational impact, and wider economy.
Ethical and social reasons
- It’s the right thing to do
First things first: paying all employees a livable wage is the morally correct thing to do. After all, the whole point of having a job is to be able to afford at least basic necessities without hitting the overdraft at the end of the month. If this isn’t the case for your employees, something is going seriously wrong.
Some would also argue that employers have responsibilities towards their employees that go beyond the basics. Employers should do what they can to support their employees’ wellbeing — including financial wellbeing. And paying a living wage is a good start.
- It lifts workers out of poverty
Around the world, some 241 million workers are living in poverty. This means that, despite having a job, they’re unable to afford basic necessities for themselves and their families. Since those without the means to get through the month are more likely to go into debt, this problem only gets worse over time.
Committing to paying at least the local living wage to all workers in your supply chain could help lift thousands of people out of this situation, enabling employees and their families to flourish. The more companies take this approach, the more we can reduce social inequality globally — creating a fairer world for all of us.
- It counteracts the gender pay gap
Women are more likely than men to experience in-work poverty, and the least developed countries tend to have the most pronounced gender pay gaps. Even in Europe, women face more socio-economic challenges and higher levels of poverty than men — and the situation has only gotten worse since the pandemic.
Raising the wages of the lowest-paid workers has a disproportionate impact on women, since they’re more likely to hold those jobs — according to a study from the US, women hold 83% of the lowest-paid roles. Paying a living wage could have a noticeable effect on the gender pay gap at a company, national and even global level.
Employee impact reasons
- It makes for happier, healthier employees
Paying decent wages to all employees can help alleviate financial stress by ensuring they’re able to meet their immediate needs. Plus, with more money, employees can afford to maintain a healthy diet, secure a suitable living space for their family, and even invest in wellness benefits like gym memberships.
All of this means that employees who earn decent wages are likely to be happier and healthier than those who don’t. They’re more likely to thrive at home and at work — and less likely to experience things like stress and burnout.
- It boosts productivity and engagement
Implementing policies that make your employees happier and healthier isn’t just a nice thing to do — it’s also good for business. That’s because employees who are less stressed, more well-rested and more financially stable are more likely to be reliable, motivated and engaged at work.
Paying a living wage also means employees won’t need a second job just to make ends meet, and won’t have to work unsustainable hours just to meet their needs. All of this translates into higher productivity and engagement. In fact, according to PwC, increasing productivity is a driving factor behind the introduction of a living wage for 19% of companies.
Organisational impact reasons
- It helps attract and retain talent
It’s hardly surprising that 75% of low-paid workers would switch to an employer that paid the living wage — everyone wants to be able to make ends meet, after all. But committing to paying decent wages can also have an impact on talent attraction beyond your lowest-paying positions.
The reason is simple: it demonstrates a commitment to fairness and shows all employees that you truly care about them and their well-being. In fact, over half of accredited Living Wage employers in the UK said that paying a living wage has improved both recruitment and retention rates.
- It enhances your brand reputation
It’s not just employees who favour ethical businesses that care about their workers. According to the Living Wage Foundation, 86% of investors view investing in employees as an important factor in their decision-making — and 62% say Living Wage accreditation is something they look out for.
Plus, today’s customers are becoming increasingly discerning about where they choose to spend their hard-earned cash, with many opting to buy from ethical brands. Paying a living wage could be the deciding factor in a choice between you and a competitor.
- It improves customer experience outcomes
Paying livable wages improves employee retention, meaning employees stay with the same employers for longer. As we’ve discussed, it can also have a transformative impact on productivity and work quality.
This helps to create a more stable and skilled workforce, which translates to better customer service. In short, happy employees = happy customers and fewer complaints — which can have a significant financial impact on a business.
- It could boost your bottom line
It doesn’t take a business degree to see that many of the above benefits can have a serious impact on a company’s bottom line. Businesses are more likely to be strong financial performers when employees are happier, healthier, more productive and able to produce better quality work than when they’re stressed, financially strained and possibly juggling several jobs.
Committing to paying all employees at least the living wage comes at a cost, yes. For Michelin, it meant raising their salary floor to €39,638 in Paris, even though the minimum wage at the time was €21,203. But as this list has proven, paying a living wage is not only the right thing to do for employees and for society as a whole — it's also a smart business strategy.
Wider economy reasons
- It drives economic growth
Employees who have money are more likely to spend money. And productivity also increases when workers aren’t stressed about their finances. Both of these things mean that more companies paying a living wage could have a significant impact on the global economy.
According to one study from the UK, raising the pay of just a quarter of the country’s low-paid workers would put an extra £1.7 billion back into the economy through increased spending and productivity gains. And if this policy were adopted globally, the impact would be even bigger: according to the World Economic Forum, a globally implemented living wage could generate an additional $4.6 trillion in GDP each year.
Beyond living wages: building a fair and competitive compensation structure
Paying a living wage helps ensure employees are able to afford basic necessities for themselves and their families, and set aside money for emergencies. It may also provide them with a limited budget for things like leisure and holidays.
But in 2025… isn’t that the bare minimum? At Figures, we believe that all employees deserve a fair, equitable wage that allows them to live a decent life — as a baseline. We also believe that each employee should earn a wage that’s fair and competitive for their role, level and location — regardless of their gender, background or other irrelevant factors.
Want to learn more? Check out our guide to making fair compensation decisions for the full lowdown, including insights on salary benchmarking, job architecture, manager training and more.
