Worker Debt and Inequality
Executive Summary
Workers across global supply chains are susceptible to forced labour not simply through structural discrimination related to race, class, gender, age, or other forms of social marginalisation and exclusion, but through business and governmental practices that drive them into debt. These include low wages and underpayment, the imposition of fees and usurious interest rates by employers and intermediaries, and dominant modes of regulating migrant labour. Indeed, various forms of indebtedness have long been documented as cornerstones of business models configured around forced labour and human trafficking.1 These dynamics occur across both product and labour supply chains.
In factories, farms, and other worksites within product supply chains, producers seek to generate revenue by driving workers into debt bondage, a common form of forced labour. They often do this through practices like charging workers predatory rates for services (e.g. the provision of accommodation) or even false provisions, making fraudulent deductions from pay, or extending credit at usurious interest rates.2
Exploitative business models reliant on debt as a tool of value extraction and worker coercion are also common within labour supply chains.3 Workers often arrive on jobsites already encumbered by debts incurred to labour market intermediaries, such as recruitment agents or labour providers. Once on their worksites, fraudulent wage deductions, exorbitant interest rates on advances and loans, or non-payment altogether can push net wages below legal minimums.4 Chronic underpayment, wage theft, and other forms of financial expropriation on the worksite often combine with debts incurred in the recruitment process to render work-related financial obligations (e.g. recruitment or accommodation fees) un-repayable.
Significantly, many workers in contemporary supply chains are burdened by debt acquired to meet basic necessities (e.g. food and healthcare). They tend to lack alternative credit or access to formal banks, which leaves them receptive to more informal sources of credit that appear flexible initially, as in the case of wage advances or initial recruitment/ transportation fees.5 However, these forms of credit and the dynamics of indebtedness that follow are a key element exploited by business actors that results in forced labour and human trafficking. Such dynamics are not new; rather, salary advances have long been, and continue to be, a critical part of the dynamics of forced labour.
While debt bondage is widely recognised as an issue attached to labour migration, dominant modes of such movement — that rarely prioritise and protect worker welfare6 — result in worker indebtedness closely associated with forced labour, even amongst non-migrant workers in both domestic and global supply chains.7 Fundamentally, debt is anchored in poverty, and overlapping inequities. This includes wealth inequities between individuals and between nations — and the global political economic dynamics that give rise to these8 — as well as other forms of socio-political marginalisation. It is a larger, more far-reaching problem than is typically acknowledged in business and policy efforts to tackle forced labour and human trafficking. And it is one poised to expand in tandem with inequities of wealth and power.
Fortunately, there are options to address these problems. Worker debt can be forgiven, usury laws enforced, and lending to low-wage workers expanded and carefully regulated. Furthermore, paying living wages and ensuring that companies — rather than workers — bear the costs of recruitment will vastly reduce the need for workers to take on debts in the future. Stronger regulation targeting the role of debt within business models of forced labour can be implemented to stop producers and intermediaries from engaging in debt bondage, whether unwittingly or consciously.
Along labour supply chains, worker debt can be tackled through adequate regulation focusing on recruitment practices, intermediaries, and shared liability. This should happen in a targeted way that responds to and reflects the risks of forced labour within supply chains. For instance, key indicators may include: the presence of a high number of labour intermediaries combined with low-waged work; low value capture segments of the supply chain; and the requirement for workers to purchase ancillary services.9 A new approach to liability within labour supply chains “realigns risk and responsibility for the harms that attend the global recruitment of low-wage workers.”10
Along product supply chains, corporations can support worker-driven initiatives to relieve financial pressures and avoid predatory lending by including new indicators related to debt, intermediaries, and pay as key metrics for forced labour risks. Furthermore, corporations can set fair payments for goods across the supply chain and ensure fair, living wages are paid at all nodes to reduce the risks of workers sliding into debt in the first place. Governments can support this by raising the wage floor, penalizing predatory lending to workers, and directing resources towards social security and protection measures specifically targeting low-wage and migrant workers who bear disproportionate vulnerability to forced labour. Crucially, governments must ensure labour regulations are enforced and offer due protections to workers regardless of their immigration status.
Problem
Worker debt is an endemic, albeit far too often overlooked, source of vulnerability to forced labour and overlapping forms of labour exploitation in supply chains. While much of the attention on sources of vulnerability to forced labour focuses on non-economic individual level traits such as gender or migration status, a growing body of research finds that financial indicators such as level of indebtedness, (in)formality of borrowing, and interest rates attached to loans are equally influential.11 Importantly, most indebted workers who become vulnerable to forced labour do not face absolute poverty, but belong to the ‘working poor.’12
While it is tempting to see debt as an individual problem, it is both rooted in and reflective of a broader set of political and economic dynamics.13 Fundamentally, supply chain workers often end up in debt because they are poor and are paid illegally low wages. Unable to obtain the basic necessities of life or access decent work in their home market, workers are forced to borrow, often informally and at usurious interest rates. In other words, individual debts are entangled with inequalities related to wealth, access to financial institutions (especially around credit and lending), state-based provisioning of services like health care and food assistance, and the accessibility of decent work.14
Furthermore, in the face of falling labour standards enforcement across many jurisdictions over recent decades, growing power differentials between workers and businesses (including both producers and labour market intermediaries) has allowed business models configured to profit from worker indebtedness to flourish.15 This has transformed worker debt into a widespread vector of profitability and coercion for business actors who use it to generate revenue and minimise their production costs.16 Empirical studies of forced labour across several sectors and countries have linked business models reliant on worker debt to supply chain dynamics, especially sectors with low margins and low value share.17
This includes the booming industry in migrant worker recruitment and provision, which is too often a trade in debt-bonded workers.18
Outside of contexts wherein traditional debt bondage or ‘peonage’ constitutes forced labour’s primary modality, only rarely do the metrics and indicators used to assess supply chains’ risk of human trafficking encompass the level and nature of worker indebtedness, interest rates on worker loans, and overlapping financial relations as markers of vulnerability to forced labour. Neither measures like debt forgiveness or the adequate regulation of credit, lending, and financial institutions, nor rendering debt- based business models unviable and unprofitable figure centrally enough in dominant solutions to forced labour in supply chains.
This brief draws from recent research to outline key dimensions of the problem of worker debt and inequality, underscoring that these cannot be understood in isolation but rather are mutually reinforcing and intertwined.
Individual worker debts are rooted in, reflect, and reinforce the unequal integration of countries, and historically marginalised and dispossessed populations, into the global market and value chains.
- → As countries, and historically marginalised and dispossessed populations within them, have been integrated into the global market and value chains over recent decades, inequalities have surged.19 Inequality has intensified between and within countries as the re- regulation of labour markets, business, and state provisioning during the neoliberal era has exacerbated and deepened the paucity of decent work, given businesses and capital significantly more power and mobility, and reduced social protection and provisioning.20 Countries, including the populations within them who have suffered discrimination, colonial dispossession of land and resources, and historic wrongs including enslavement, have been thrust into labour markets on unequal and, in many cases, unfree terms.21 Contemporary discrimination along lines of indigeneity, race and ethnicity, ability, and gender further entrench these inequalities and affect social mobility.22
- → Just as people have become more reliant on the market and money to obtain the necessities of life, the costs of healthcare, education, food, and housing have surged in many places.23 Across both global North and South contexts, there has been a dramatic expansion of the working poor; in other words, people who are working but whose incomes fall below the poverty line. In the absence of strong social protection, these workers often turn to private debt to fulfil their needs or to access more lucrative labour markets.24 In many countries, household and individual debts have skyrocketed, and spending is often linked to essentials like food and medical care.25
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