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

12 Pages Posted: 15 Jun 2022

See all articles by Drew Keller

Drew Keller

Harvard University - Business School (HBS)

Katie Panella

Harvard University - Harvard Business School

George Serafeim

Harvard Business School

Date Written: June 3, 2022

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.

Suggested Citation

Keller, Drew and Panella, Katie and Serafeim, George, A Conceptualization of Sub-Living Wages: Liabilities, Leverage, and Risk (June 3, 2022). Harvard Business School Accounting & Management Unit Working Paper No. 22-076, Available at SSRN: https://ssrn.com/abstract=4137565 or http://dx.doi.org/10.2139/ssrn.4137565

Drew Keller

Harvard University - Business School (HBS)

Boston, MA 02163
United States

Katie Panella (Contact Author)

Harvard University - Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

George Serafeim

Harvard Business School ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=15705

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