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  • 2022
  • Working Paper
  • HBS Working Paper Series

A Conceptualization of Sub-Living Wages: Liabilities, Leverage, and Risk

By: Drew Keller, Katie Panella and George Serafeim
  • Format:Print
  • | Language:English
  • | Pages:12
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Abstract

Currently the accounting system records employee wages as an expense in the income statement. However, paying below living wages can expose an organization to reputational and operational risks. In this paper, we offer an alternative conceptualization of the issue of low wages and in particular wages that are below the local living wage. We propose a simple double entry bookkeeping approach to account for wages paid below a local living wage level through a firm’s balance sheet, where wages below the living wage threshold create a leverage effect as the organization borrows from society. Firms paying below the living wage therefore exhibit higher leverage reflecting higher stakeholder risk. Investors, policymakers, customers, corporate managers, and other stakeholders can use this alternative conceptualization to assess an organization’s exposure to human capital erosion.

Keywords

Accounting; Impact Accounting; Leverage; Wages; Compensation and Benefits; Business and Stakeholder Relations; Business and Government Relations; Social Issues; Human Capital

Citation

Keller, Drew, Katie Panella, and George Serafeim. "A Conceptualization of Sub-Living Wages: Liabilities, Leverage, and Risk." Harvard Business School Working Paper, No. 22-076, June 2022.
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About The Author

George Serafeim

Accounting and Management
→More Publications

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