Accounting for Just Wages: A Proposal

Abstract

Few firms provide corporate social responsibility (CSR) reports and even fewer reports on issues relating to the duty to pay a “just wage” as this duty is understood by the tradition of Christian Social Thought (see the Compendium of the Social Doctrine of the Church, Chap. 6 “Human Work,” V. “The Rights of Workers,” §302 “The Right to Fair Remuneration and Income Distribution”). In this chapter I address the question of how a firm might implement a system to fulfill a commitment to pay just wages, and make a concrete proposal for reporting standards concerning just wages.

Addendum

1.1 A Hypothetical Example of a Socially Committed Firm Paying Below Just Wages

A reader of this proposal commented that he doubted that any firm would report failing to pay just wages once it had committed to do so. He may be correct, but I think there are some interesting cases in which firms might. Here is a hypothetical example.

Consider a struggling firm that is committed both to the principles of Christian Social Thought, including paying a just wage, and to a vigorous program of corporate social reporting. The firm’s products are sold in a highly competitive market, so they have little upward price flexibility, it cannot improve its product mix, and there are no viable new products on the horizon. The company’s financial performance is break-even, and its cash flow is just barely adequate even though it runs a lean operation with no superfluous assets or expenses. It cannot significantly change the efficiency of its operations by changing its asset mix. These factors suggest the company has little capacity to take on new debt.

The firm’s policy is to locate its manufacturing operations in economically depressed areas in an attempt to provide employment and stimulate the local economy. Although it is committed to paying just wages, to do so in some of these locales would push these operations into the red and result in a significant drain on the cash reserves of the company. That is not a viable option. An alternative would be to close these operations, but the company refuses to do so because it would hurt its current workers by thrusting them into the ranks of the unemployed in a severely depressed labor market. Instead, it chooses a third option: it pays the highest wage it can while maintaining a break-even situation with respect to both income and cash flow. The firm was able to pay a premium over the market wage of 18.6 % in 2005 and 20.0 % in 2013 (as in the example in Table 12.2), but such wages still fall short of a just wage. It appears that this sort of situation is envisioned by Quadragesimo anno §72: “In determining the amount of the wage, the condition of a business and of the one carrying it on must also be taken into account; for it would be unjust to demand excessive wages which a business cannot stand without its ruin and consequent calamity to the workers.”

Table 12.2 Calculations for presentation table

I believe such a company might well wish to report their just wage information in the format I suggest above. When this information is taken in conjunction with the firm’s financial statements, other social responsibility disclosures and management discussions stakeholders are presented with a picture of the firm that includes all the materially important information in evaluating the firm’s overall performance. And presumably that is the picture such a firm wishes to provide.

Let me add one last remark. While I suspect that there will be for-profit firms that fit the above description to a large degree, I suspect there will be even more nonprofit service providers who do so mutatis mutandis. When such organizations consider the wages they are able to pay, they must take into account not only the welfare of their current workers (as in the above example) but also the welfare of those who receive their services. Will the organization shut down operations in an area when it cannot pay just wages, even though workers and service recipients will both be hurt? In these cases, the just wage disclosures proposed above can be an integral part of explaining the organization and its operations to its stakeholders.