Investments aligned with this Strategic Goal aim to improve income earned from work, specifically for disadvantaged, excluded, and low-income populations. These investments help to ensure that every person can earn at least a living wage that permits them and their dependents not only to meet their needs but also to build longer-term wealth and prosperity.

What

Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What problem does the investment aim to address? For the target stakeholders experiencing the problem, how important is this change?

Low-wage work can represent a first steppingstone into the labor market and a pathway towards better-paid employment, especially for young workers. It can also lock workers into cycles of poverty and exclusion, whether through lack of opportunities for skill development, inability of the employer to pay more, lack of benefits, or wage discrimination (27). In countries like Belgium or New Zealand, the incidence of low pay is between 5-7%; in the U.S., it is around 23%; and in emerging market countries like Colombia, Chile and Costa Rica where it varies between 10 and 14% (28).

Some people face greater risk of low-wage work simply by virtue of their sex, race, ethnicity, or residency status (1). Others face greater risk because of their job’s location or context, such as jobs in the informal sector, in agriculture, or in a small or family-owned firm (1).

Income is not the only measure related to poverty levels and systematic vulnerability. Wealth also contributes to standards of living and largely determines how families can cope with periods of low income (2). Savings and assets are essential in the long-term, unlocking access to other financial services, such as credit and insurance, that themselves can increase wealth or act as mechanisms to manage risk and reduce vulnerabilities and inequalities (for more on this point, see the strategic goal “Improving Financial Health” in the IRIS+ Financial Inclusion theme) (3).

Investments aiming to improve earnings and wealth through employment and entrepreneurship can drive impact by:

  • supporting measures to improve growth and productivity through mechanisms that directly benefit employees or entrepreneurs, such as performance incentives for workers, mechanisms for worker engagement, access to (new) technologies for entrepreneurs, production of higher-value-added products, and access to new markets;
  • ensuring equal pay for work of equal value within the company and its suppliers, through strong HR policies and procedures displayed in the workplace, worker engagement, equitable pay measures, living wages, and procurement policies;
  • supporting mechanisms for career advancement, providing opportunities for all workers to develop skills to access new roles; and
  • supporting mechanisms for savings and wealth creation by workers and entrepreneurs through employee ownership, profit sharing, retirement plans, savings, and insurance use.

Target stakeholders can then experience the following common outcomes, among others:

  • Improved pay equity
  • Improved income-earning opportunities
  • Improved business performance, through factors including higher productivity and worker satisfaction, reduced employee turnover, and increased cost savings

What is the scale of the problem?

According to most recent ILO estimates, 19% of the global workforce is extremely poor (7%) or moderately poor (12%) (4).* Globally, low-paid workers are disproportionately female, often young, have low levels of education, and are more likely to be members of disadvantaged ethnic minority, racial, or immigrant groups in their particular country (5). Data from 2017 show that the distributions of global labor income are highly unequal; a worker in the upper decile of the global labor income distribution earned on average USD 7,400 per month, whereas one in the bottom decile earned just USD 22 per month (both figures in PPP terms). The global share of labor income was 49% for those in the top 10% and just 6% for the bottom 50% (6).

*This source uses the following definition for “extremely poor”: Daily income per capita below USD 1.90, PPP; moderately poor: daily income per capita between USD 1.90 and USD 3.20, PPP (4).

Who

Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who (people, planet, or both) is helped through investments aligned with this Strategic Goal?

Improving earnings and wealth through employment and entrepreneurship could positively impact workers, their families, and the enterprises that employ them, with the following groups most directly impacted.*

  • Working Poor: Many employed workers live in households that fall below the standard absolute poverty line (USD 1.90/day PPP) (7). In developed countries, poverty is often associated with unemployment, but, in developing countries, even employed persons can experience absolute poverty. The working poor face either under-employment or low quality of employment and cannot earn enough income or have the employment benefits necessary to lift themselves out of poverty (8).
  • Vulnerable Workers: As they are less likely to have formal work arrangements, vulnerable workers often lack decent working conditions, adequate social security, and ‘voice’ through effective representation by trade unions and similar organizations. Vulnerable employment is often characterized by inadequate earnings, low productivity, and difficult working conditions that undermine workers’ fundamental rights.
  • Workers in Precarious Employment: Many workers face an uncertain duration of employment, multiple possible employers, or a disguised or ambiguous employment relationship, often characterized by an informal nature of work or caused by nonstandard forms of employment. Workers in precarious employment are more likely to lack access to social protections and benefits usually associated with employment, as well as lower pay. 
  • Entrepreneurs: Among those who are self-employed, many entrepreneurs have turned to entrepreneurial activities for economic survival, even as some pursue identified business opportunities (9). Many entrepreneurs lack the skills, technology, or financial means required to develop and grow their micro or small businesses. Investments aligned with this Strategic Goal can support these entrepreneurs to increase their businesses’ earnings.
  • Women: Women typically have more limited access to high-quality employment opportunities compared to men, as well as lower rates of labor participation. Women are less likely to become entrepreneurs than men, and more women are classified as unpaid family workers. Women perform most household and care work, which means women average fewer paid working hours than men. Investments aligned with this Strategic Goal should consider specific gender characteristics in local context and ensure that investments actively include a gender lens (10).
  • People with Disabilities: In most countries, more people with disabilities are in vulnerable employment and are paid less compared to persons without disabilities (11). Investments aligned with this Strategic Goal can actively engage with investee companies to upgrade their HR policies and procedures to be more inclusive of people with disabilities, avoiding pay discrimination and offering career progression opportunities.
  • Individuals from Deprived Communities and Disadvantaged or Marginalized Groups, Including Migrants, Incarcerated Populations, and Disadvantaged Ethnic Groups: Migrants are more likely to be unemployed compared to non-migrants, and they face difficulties in finding good-quality jobs, with more finding low-skilled jobs (17%) compared to non-migrants (12%) (12). Investments that aim to improve earnings through employment and entrepreneurship must consider the characteristics of the target stakeholders and work with investees to implement inclusive policies that improve cultural attitudes against any discrimination by gender, ethnicity, sexual orientation, or race. In the US alone, there are 2.3 million people behind bars -- more than 1 in 100 adults. Annual wages for the formerly incarcerated are estimated to be reduced by 40%, not including the lost wages during the time served (24).

The following are intermediate target stakeholders for this Strategic Goal.

  • Employers, as they increase wages or offer employees performance-based benefits, could see their increased productivity translate into higher revenues, lower operating costs, and improved margins, as well as increased customer satisfaction (13). This also benefits corporate shareholders through increased returns to capital.
  • Governments then receive higher tax revenues resulting from higher incomes and higher productivity, resources that may be spent on public services to benefit the broader population (14).
  • Families and communities may also see positive effects.

*The geography and cultural context of the investment will play a key role in determining the groups impacted and the particular characteristics of the group.

What are the geographic attributes of those who are affected?

Waged work does not always provide a route out of poverty. Low pay is particularly prevalent in developing countries, which means that workers must work excessively long hours in order to provide a minimum standard of living. This is particularly acute in Africa, where 53% of workers live in moderate or extreme poverty (15). Women perform 76.2% of the total amount of unpaid care, equivalent to a daily amount of 4h and 25 minutes, against 1h and 23 minutes dedicated by men (26). In high-income countries women are just paid for 37% of the time they work (men 65%), in middle income and low income countries they are paid for close to 42% of the time they work (men 84% and 76% respectively).The incidence of working poverty is also rising in some European countries and the United States, with significant variance within regions.

Whereas in France and the United States an estimated one-third of low-paid workers transition to higher-paid employment within a year, in Germany and the Netherlands, this proportion stands around 25% (16). In the Republic of Korea, the incidence of low pay is among the highest in the world. There, the probability that low-paid workers will remain in low-paid employment has increased in recent years, in combination with a general increase in the incidence of low pay.

The gender pay gap, which relates to the difference in average earnings between men and women, is a global phenomenon (world average 20.5%) that varies by country, sector, and income group (17). It is larger in high-income countries (25.6%) and low-income countries (28.2%), whereas in middle-income countries it varies between 15.8% and 19.8%. In high-income countries, women are more likely to work for low pay (23.8%) compared to men (14.7%) (18).

Contribution

Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

How can investments in line with this Strategic Goal contribute to outcomes, and are these investments’ effects likely better, worse, or neutral than what would happen otherwise

Organizations can consider contribution at two levels — at the enterprise level and at the investor level. At the enterprise level, contribution is “the extent to which the enterprise contributed to an outcome by considering what would have otherwise happened in absence of their activities (i.e. a counterfactual scenario).” To learn more about methods for assessing counterfactuals, see the Impact Management Project. At the investor level, organizations can use a number of strategies to contribute toward impact, and details specific to this strategic goal are below.

At the investor level, organizations investing in projects that improve workers’ earnings and wealth can contribute toward solutions as follows.

  • Signal that impact matters. By investing in projects targeting improvements in earnings and wealth through employment and entrepreneurship, investors signal their commitment to changing attitudes towards workers among investee companies and contribute to more equal societies.
  • Engage actively. Investors can use their leverage on investees to actively implement measures, through Technical Assistance, that aim to improve processes, such as the acquisition of new technologies to improve productivity, that can translate into better wages for employees, higher productivity, and higher business income for entrepreneurs. Investors can encourage investees to implement performance incentives for workers, which could improve growth and productivity by raising employee satisfaction, lowering churn rates, and raising employee wages. Through engagement with investees’ management teams, investors can influence the implementation of strong human resources policies and procedures to promote payment equity in the workplace. The Church Investors Group, for example, votes against the Chairs of companies that do not meeting their worker-related criteria including having at least one woman on the investment committee, disclosing pay ratios between the CEO and average employees, and for some specific sectors, being living wage accredited (21).
  • Grow new or undersupplied capital markets. To raise business earnings, entrepreneurs usually need access to new technologies, best practices, and skills. Investors can tap into these new opportunities that urgently need financing. The IFC, for example, has estimated that the financing gap for Micro, Small, and Medium-Sized Enterprises in developing countries stands at USD 5.2 trillion (22). Investors can help catalyze and capitalize these underserved markets to target the needs of enterprises and entrepreneurs.
  • Provide flexible capital. For investments in new markets or in new technological measures, higher profits may not materialize, and concessional capital might be needed. Root Capital invests in the growth of agricultural enterprises in Africa and South America, recognizing that these types of business often require disproportionately low risk-adjusted returns in order to generate certain kinds of impact (23). Meeting the needs of highly underserved markets also requires patient capital, as market development and building are long-term activities.

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many target stakeholders can experience the outcome through investments aligned with this Strategic Goal?

Investments in line with this Strategic Goal can benefit all workers, most particularly those under or close to the poverty line. Almost one in five employed workers do not earn enough to keep them and their families out of poverty.

How much change can target stakeholders experience through investments aligned with this Strategic Goal?

The potential impact of investments in this Strategic Goal vary with the specific activities undertaken by the investee and the specific areas of improvement. The following are examples of the impact of improving earnings and wealth through employment and entrepreneurship.

  • A study comparing two relatively similar garment plants in Mexico found that although both plants complied with minimum wage legislation, the plant with higher wages (higher base rate plus incentives for productivity, totaling an average of USD 17.20 per day, versus USD 13.60 per day for the lower-wage plant) had lower unit labor costs (US 0.11 per shirt versus US 0.18 per shirt) and higher productivity (150 shirts per worker versus 80 shirts per worker) compared to the lower-wage plant (19). Apart from the wage difference, the plant offering higher wages promotes teamwork, encourages workers to do different tasks, and promotes worker participation in work-related decisions, among other initiatives.
  • The ILO’s Microfinance for Decent Work research tested innovative approaches to foster social impact through the delivery of financial and non-financial services to MFI clients. The program worked with one MFI in the Philippines (NWTF), which introduced training on generating and starting businesses, as well as on wealth management. An impact evaluation showed a 13% treatment effect in perception of lower barriers to entrepreneurship. Per-business profit increased by approximately USD 50 (almost double the baseline profit), ownership of motorized vehicles increased by 3.5% (positive impact on asset building), and there was a 5% increase in the use of micro-insurance to cover unforeseen expenses (positive impact on risk management) (20).

Risk

Dimensions of Impact: RISK

Key questions in this dimension include:

What impact risks do investments aligned with this Strategic Goal run? How can investments mitigate them?

The following are impact risk factors for investments in line with this Strategic Goal.

  • Execution Risk: Investees implementing new approaches that aim to create higher income for self-employed workers or to increase employees’ wages may not improve business outcomes as much as anticipated, putting at risk the intervention and leading to disappointed stakeholders. To mitigate this risk, investors must ground their interventions in research in similar contexts and remain flexible to adjust interventions to context as needed.
  • Endurance Risk: Certain outcomes, such as wealth building, may take a long time to materialize. Certain interventions may also not last over longer periods, such as good agricultural practices, or access to markets for (micro) entrepreneurs might not be sustained, affecting the continuity of their earnings. To mitigate this risk, investors need to manage investees’ expectations and communicate clear timelines and use research-based methods that have proven successful in other interventions. They should also consider the long-term sustainability of their work, including across business cycles, and ensure responsible exit strategies that support the continuation of behavioral and policy changes achieved during the investment.
  • External Risk: Local regulations and policy frameworks in certain geographies may be restrictive or lacking, greatly hindering the implementation of innovative measures. To mitigate this risk, investors need to make sure to understand the regulatory frameworks affecting their investments, engage with local (government) stakeholders early in the investment process, and promote social dialogue among relevant stakeholders. Unexpected crises could present another external risk that can be partly mitigated by offering workers universal social benefits and improving investees’ resilience through technical assistance (for example, improving governance structures).
  • Stakeholder Participation Risk: Investees and investors may have different expectations regarding improved workers’ wages. Investees may not discern the direct benefits of this action, seeing raised wages as an extra expense that their competitors do not have. To mitigate this risk, investors can work actively with investees, using evidence of positive outcomes for employers and employees, to implement proven practices to improve productivity, in combination with better reward systems for employees.
  • Alignment Risk: Investees could not lock into their business model the commitment to provide good working conditions and fair earnings across their workforce. Investors can address this risk by promoting relevant policies and processes (such as HR performance management systems) and assuring engaged implementation across HR and different levels of management, providing incentives and engraining best practices in the investee’s working culture.

What are likely consequences of these impact risk factors?

If not mitigated, these impact risk factors may lead to workers and entrepreneurs falling into poverty—or not being able to escape from it—perpetuating a cycle of low-paid jobs that fuels intergenerational inequality.

Illustrative Investment

Unreasonable Group, an investment firm promoting entrepreneurial growth, has invested in SunCulture, based in Kenya, which provides low cost, solar-powered irrigation to African farmers. They design, manufacture, sell, and distribute these drip irrigation systems, the use of which can increase farmers’ yields by more than 300%, translating to improved incomes.

Platform Living Wage Financials (PLWF) is an alliance of 13 financial institutions representing over EUR 2.6 trillion in assets under management and established in 2018. It encourages and monitors investee companies to address the non-payment of living wages in global supply chains. PLWF target three specific sectors that employ manual labor and where wages are commonly insufficient to cover living expenses: garment and footwear, food retail, and food and agriculture. One of their findings is that a living wage could be a proxy indicator, as companies that pursued more sophisticated interventions for a living wage tend to have highly developed policies and processes on other labor and human rights standards.

Chiratae Ventures, an asset manager in India investing in innovative tech start-ups, has provided financing to Blowhorn, an asset-light, intra-city marketplace for logistics that connects truck drivers to corporate demand. Blowhorn offer solutions for manufacturers to deliver their products faster, small businesses that rely on their spot market for asset-light logistics, and individuals transacting second-hand goods. Unlike competitors, drivers earn fixed fees for their work. Owner-drivers who provide the transportation services have increased their earnings and improved their skills.

HCAP Partners provides mezzanine debt and private equity for underserved, lower-middle-market companies in the United States. Over 2019, HCAP built a technology solution to incorporate worker voice into its impact framework, directly surveying each employee within its portfolio companies to understand job satisfaction and areas of improvement. In 2015, HCAP invested in Mission Senior Living (“MSL”). In 2017, MSL management realized that 40% of their frontline staff had no access to banking and used payday lenders to cash their checks. HCAP and MSL set up a partnership with the Northern Nevada Credit Union, solving banking needs for their frontline staff and promoting savings, reducing fees, improving access to credit, and facilitating financial education.

Yunus Social Business, a company with a social mission, invested in RangSutra, which acts as bridge between rural artisans and consumers to create sustainable livelihoods in India, where more than 100 million people rely on textiles and handicrafts as their main source of income. RangSutra works with artisan cooperatives from rural villages to source textiles, which are turned into finished garments and sold to buyers and retailers. The company provides skills training, design input, working capital, and quality control. More than 2,500 artisans (70% of them women) have benefited from equal pay, fair wages, a safe working environment, and skills training, and their incomes have increased more than five fold (Rs. 5,000).

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

NESTA: 3
Generating Skilled Self-Employment In Developing Countries: Experimental Evidence From Uganda

Christopher Blattman, Nathan Fiala, Sebastian Martinez, Generating Skilled Self-Employment in Developing Countries: Experimental Evidence from Uganda , The Quarterly Journal of Economics, Volume 129, Issue 2, May 2014, Pages 697–752, https://doi.org/10.1093/qje/qjt057

NESTA: 2
Technology Adoption, Productivity And Specialization Of Uruguayan Breeders: Evidence From An Impact Evaluation

López, Fernando & Maffioli, Alessandro, 2011. “Technology Adoption, Productivity and Specialization of Uruguayan Breeders: Evidence from an Impact Evaluation,” IDB Publications (Working Papers) 3014, Inter-American Development Bank.

NESTA: 2
The Impact Of Minimum Wages On Employment Of Low-Wage Workers: Evidence From Vietnam

Nguyen, C.V. (2013), The impact of minimum wages on employment of low‐wage workers. Econ Transit, 21: 583-615. doi:10.1111/ecot.12022

NESTA: 2
Stalled Progress?: Gender Segregation and Wage Inequality Among Managers, 1980‐2000

Cohen, P. N., Huffman, M. L., & Knauer, S. (2009). Stalled Progress?: Gender Segregation and Wage Inequality Among Managers, 1980‐2000. Work and Occupations, 36(4), 318–342. https://doi.org/10.1177/0730888409347582

NESTA: 2
Living Wage Effects: New and Improved Evidence Adams, S., & Neumark, D. (2005). Living Wage Effects: New and Improved Evidence. Economic Development Quarterly, 19(1), 80–102. https://doi.org/10.1177/0891242404268639
NESTA: 1
Differences between union and nonunion compensation, 2001–2011

George I. Long, 2013. Differences in union and nonunion compensation, 2001–2011

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.