Economic empowerment made-to-measure: How companies can benefit more people

Full economic empowerment is achieved when a household can afford basic goods and services, go to work, contribute to economic growth, and focus on more than mere survival. To measure empowerment, we use the empowerment line, a metric developed by the McKinsey Global Institute (MGI) that estimates the cost of a basket of essential goods and services—including housing, healthcare, food, and transportation—for a frugal yet decent quality of life.

Empowerment thresholds vary widely from economy to economy, increasing from a global floor of $12 per person per day in purchasing power parity terms and range from $ 4 to $ 70 in nominal terms.  

Establishing each economy’s threshold makes it possible to size its empowerment gap, which is the boost in spending power needed for everyone to reach the empowerment line.  In 2020, approximately 60 percent of the global population—4.7 billion of the world’s 8.0 billion people—lived below the empowerment line and struggled to make ends meet. Every populated continent and country has people below the line.

What lifts people into empowerment? The answer has many layers. For 4.3 billion people residing in lower- and middle-income economies—accounting for 95 percent of the world’s people below empowerment—GDP growth is likely the most powerful path.

20 percent of the population even in higher-income economies that are not economically empowered—and that number is stubbornly consistent even as GDP per capita grows. In other words, countries can’t seem to grow their way out of the issue and economically empower the final 20 percent of the population. Costs of essential goods and services have been rising faster than overall inflation in many markets, making empowerment out of reach for some households, even as GDP per capita increases.

There are many elements influencing economic empowerment on both the income side and the spending side. Macro-level analysis of 120 economies (home to more than 90 percent of the global population) breaks down into nine such elements—including four labor market metrics and five major components of cost of essentials—into measurable dimensions to capture the relative scale.  These nine elements are: for Income Elements (Working age population, labor participation, job opportunities, and stable jobs with sufficient wages); and for Affordability Elements (Housing, Food, Transportation, Health, and Education).  

At the country level, the proportion of the population that can be counted as economically empowered varies significantly, and for different reasons. Context clearly matters—there are significant variations even among economies with comparable levels of GDP.   Empowerment challenges can vary significantly among people with different education levels and members of different demographic groups.  Understanding what matters most in each economy is important not only for the public sector to set effective policies but also for private-sector actors. With this view, companies can better serve the needs of the populations where they operate.

The private sector employs most of the global workforce and helps keep the cost of essentials affordable. Companies are also experiencing pressure to create social impact.   We see companies all over the world contributing to the economic empowerment of billions of people. Companies do this through their core businesses as well as their training programs, retention benefits, social initiatives, and other actions.

Given that companies are already big players in economic empowerment globally, even modest increases in their positive impact could help lift vulnerable populations wherever they are found. To complement MGI top-down look at empowerment from the country level, the authors also take a view from the bottom up, asking what individual companies are doing now and what they might do better. 

Looking across this group of 100 companies that span both regions and industries, we find in company reports that there are about 70 different ways to contribute to economic empowerment across seven of the nine elements.  These actions or investments increase empowerment beyond what companies are already doing—either pursued as part of their core business serving customers, employing workers, and doing business with suppliers, or through CSR activities delivered to their communities.

With so many efforts under way and the often-significant expenditure they entail, how should companies go about prioritizing whom they serve and how?

With a wide range of empowerment challenges across economies and numerous company initiatives already under way, where should companies focus their efforts? Connections, contexts, and capabilities can serve as a guide, helping companies find their focus area of engagement.  Companies could design made-to-measure initiatives with three considerations: (1) connections: taking stock of which stakeholders within reach cannot afford basics and what their needs are; (2) contexts: identifying major barriers to empowerment in particular locations; and (3) capabilities: understanding what advantages a company’s core products and services, as well as its assets and operations, offer to empower its stakeholders.

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