Ensuring Fair Pay: The Role of Impact Investors in Living Wage Negotiations
Applying Game Theory to Wage Negotiations in the Private Sector
E.M. Gemke (TU Delft - Technology, Policy and Management)
E. Minkman – Mentor (TU Delft - Organisation & Governance)
C.P. Van Beers – Graduation committee member (TU Delft - Economics of Technology and Innovation)
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Abstract
Millions of workers worldwide still earn less than a living wage (LW), while many corporate promises to close this gap remain empty. Impact investors emerge as potential agents of change, but often lack enforceable influence.
Once the capital has been disbursed, however, companies can rationally delay wage increases due to information asymmetry. Dialogue alone rarely changes this balance, leaving investors with good intentions but limited power.
The thesis analyses European impact investors in a lower-middle-income country. Based on 13 semi-structured interviews, document research and a game-theoretical principal-agent model, it follows the negotiations from the negotiation to implementation. Three engagement channels – informal dialogue, contractual mechanisms and coalitions – are identified and ranked based on perceived legitimacy, power and urgency. Two tested instruments change the incentives: (1) impact-linked loans that reduce interest rates once LW benchmarks are met, and (2) strict compliance clauses that consider non-payment a breach of contract.
When either financial instrument is integrated, adopting a living wage becomes the company's dominant strategy. The effectiveness of this approach depends on three key conditions: first, a transparent LW benchmark must be agreed upon before signing; second, wage increases should be phased in through time-bound milestones to ease cash flow pressure; and third, engagement must follow a legitimacy-power-urgency sequence—beginning with evidence-based conviction, reinforced by enforceable conditions, and concluded with a clear deadline.
By combining qualitative insights with formal modelling, the study shows how social objectives can be embedded in the financial architecture. It distils a three-step checklist – align definitions, price incentives, enforce milestones – for practitioners, and illustrates how policy instruments such as EU due diligence rules can normalise LW disclosure.