The Living Wage is something that all the main political parties endorse. According to the Prime Minister it is an idea ‘whose time has come’; Nick Clegg is behind it; Ed Miliband praised it at the Labour conference; and Boris Johnson is a staunch supporter of the campaign. It is therefore unfortunate that, for an idea that enjoys such strong cross-party support, to date, the only local councils accredited as Living Wage employers are of one political colour – red.
Figures out this week show that almost 1 in 5 working Londoners are paid below the London Living Wage. As living costs continue to rise and wages stay stagnant, things will get worse.
The Living Wage of £7.20 per hour and the London Living Wage of £8.30 per hour are independently set rates of pay that quantify what’s needed to bring people up to a basic standard of living – keeping them just the right side of the poverty line. Day-to-day it will mean a worker being able to afford the tube instead of spending hours travelling to and from work on multiple buses. It does not afford luxuries but it is above the National Minimum Wage of £6.19 per hour.
People tend to understand the moral case for paying the Living Wage but many say there isn’t a business case for it, especially in the current climate. Which is why the results of some new and independent research conducted by Queen Mary, University of London – commissioned by Trust for London – are so important. The research shows that there are multiple business benefits of the Living Wage. One of those is reputational – the businesses interviewed found that the reputational effects helped them win new clients.
There was also a positive impact on existing staff with a 25% reduction in staff turnover rates, and over half of employees feeling more loyal and positive about their workplace. This fed through into better attitudes, a real asset in any customer-facing role.
There is, of course, no getting away from the fact that the businesses interviewed as part of research saw an increase in wage costs. However, the costs were often managed down, as the decision to pay the Living Wage led to a reassessment of existing contracts and finding more efficient ways of working. On top of that, the wage bills for those being brought up to the Living Wage made up only a small proportion of the total wage bills of companies.
Moreover, the research shows that if London firms paid the Living Wage then government would save almost £1bn a year because of an increased tax base and reduced welfare spending. This backs up the IFS study that found paying the Living Wage across the UK would save the government over £10bn.
Finally, there is great irony behind citing the economic climate as a reason for not paying the Living Wage. We know that if low paid workers get a bit more in income then they tend to spend a high proportion of it rather than save it. If all low paid workers were brought up to the Living Wage then more goods and services would be bought, injecting money directly into the economy and oiling its wheels.
The Living Wage is an idea whose time has come. But ideas alone do not help people get out of poverty. It is up to employers and politicians to actually do something; given the obvious moral case, and the multiple benefits of paying the Living Wage, there can be few excuses for complacency.
* Bharat Mehta OBE is Chief Executive of the independent charitable foundation Trust for London.
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13 Comments
Henry Ford paid his workers above the “going rate”, rather, he paid them so they could become avid consumers. This bolstered his business as well as the wider economy. In other words, the case for the Living Wage is sound and validated by history.
“However, the costs were often managed down, as the decision to pay the Living Wage led to a reassessment of existing contracts and finding more efficient ways of working.”
Sorry what does this mean exactly?
Did people work less hours or businesses end up hiring less people?
I’d be ashamed to pay anyone less than what they can live on. But I guess there might be several factors that allow employers to do this without guilt
1. Absence of customers – and so, inability to pay
2. Apparent willingness of workers to work for less
3. Possibility that workers work more than one job
4. Workers benefitting from undeclared perks
There’d also be a bit of a question about what is a living wage. It would be different for people living at home, people who owned a house rather than rented, people livibg in a rich area not a poor one, people travelling miles to work rather than just walking around the corner. How are all these kinds of variations acounted for?
As with any financial argument, you can get lost in the variables and argue the toss every which way.
The bizarre fact is that companies take advantage of being able to skimp on their wage bill because they know that welfare system tops up their employees’ take home pay
http://www.guardian.co.uk/society/2011/oct/02/low-pay-uk-living-wage
So, who’s the benefit cheat in such a case? The company?
There is no excuse for big profitable companies not to pay the Living Wage and certainly there is no reason why work contracted from the public sector funding to the private sector should not. There were a lot of false economies being made in the previous few decades. The Living Wage is definitely a better way of making work pay than punitive attacks on recipients of benefits.
It’s great that the different political Parties are broadly in agreement. Employees need stability and pay they can live on, The point is, that maybe, we are seeing the collapse of Thatcher and Blair era economic consensus . Might I suggest that rent capping would cut the benefits bill more effectively than caps on housing benefits
@Glen
Shouldn’t these big profitable companies actually stop sustaining some of the richest people in the world on £7+ an hour when they could go to the third world and pay 5x more people £1 an hour and vastly raise their living standards?
Yes and no. I agree that , if we’re going down the Germanic social market route, that workers should be paid a living wage – what I disagree with is the perpetuation of London’s prestige on the backs of others.
If you require companies to pay staff more than the marginal product of their labour, you render people with few skills unemployable. At a time when 2.6 million are unemployed, introducing measures that make it harder for them to find work is a terrible idea.
Paying fair, good , market wages is of course the right thing to do and my next few words in no way support the underpayment of people, I think it just sheds light on people’s values and priorities before money is factored in. Research shows that people will be happy not to leave a job for another one if higher pay is the only inducement if they are rewarded and satisfied in what they do. It is when other factors of employment become unsatisfactory that low pay then becomes an issue as well.
So why is the Minimum Wage not the Living Wage? Have I missed something?
Low paid workers have accepted minimum wage because of tax credit top ups. When these are taken away by this coalition with Universal Credit’s In Work Conditionalities expect this to change. Why do you think Vince wants workers to sell their rights for a worthless scrap of paper?
Doesn’t everyone in employment earn a Living Wage? They are all alive, after all.
What is so special about £7.20 per hour? Why is it called THE LIVING WAGE?
In response to Ad, there is a difference between existing and living.