The Living Wage: Supporting living standards, economic prosperity and consumer freedom

The Living Wage Campaign is a laudable campaign that seeks to protect and strengthen employee rights. The LW will be a key factor for economic recovery and crucially helps to re-balance our economic system in favour of the citizen. A decent, living wage has three positive claims: first, it rests on a moral claim that people should not be treated as cheap commodities; second, it rests on a economic claim that it will increase growth through greater consumer spending; and third, it rests on a political claim that will allow citizens to spend their money more ethically.

Living Standards

The Living Wage Campaign was founded on the principle that work should be rewarding, and that it should bring dignity. Consequently, wages should be enough to provide families the essentials of life. [1] The campaign has roots that go back to the late nineteenth century, where one MP wrote: ‘A living wage must be sufficient to maintain the worker in the highest state of industrial efficiency, with decent surroundings and sufficient leisure’. [2] A living wage is important because the minimum wage is not enough for a sufficiently comfortable life in the twenty-first century. This is not about luxury, it is about protecting living standards:

  • The Living Wage has had a colossal effect on reducing in-work poverty. Since 2001, over 45,000 families have been lifted out of working poverty, directly as a result of the LWC.
  • Relatedly, the LW contributes to a reduction in fuel poverty. A living wage would cut the horrifying situation where people have to choose between their radiator and their dinner (especially at a time when fuel bills are going up).
  • The LW is about increasing the health of employees. A higher wage means less stress, and could ensure that the money is spent on better quality food, goods and services (with obvious health benefits).
  • Being paid the minimum wage prevents parents from seeing their children at weekends because they end up with two or three jobs to make ends meet. The LW intends to end such a situation, ensuring hard-working parents’ strain is eased through wage security.
  • Better living standards will have an effect on the economy: a happier, healthier workforce will lead to higher productivity, fewer ‘sick days’ and a greater sense of social cohesion. The modest effect that the LW will have on reducing inequality is vital. [3]

Economic Prosperity

The last three bullet points of the above section have already hinted that the Living Wage plays an important part in prosperity. This is something that goes beyond the individual level, or as the Mayor of London puts it: ‘Paying the London Living Wage is not only morally right, but makes good business sense too’ (quote from LWC Website). Independent studies have shown that 80 percent of employers believed that the LW increased employees’ quality of work, and absenteeism decreased by approximately 25 percent. Two thirds of employers reported a significant impact on recruitment and retention within their organisation. 70 percent of employers felt that the Living Wage had increased consumer awareness of their organisation’s commitment to be an ethical employer. [4]

The benefits for the economy are important for the macro-level too. Higher wages allow for greater consumer spending. Workers’ spending on consumption accounts for roughly half of GDP in advanced economies. Lower wages means less spending, and hence less demand for economic output. Unless this is more than offset by new investment or exports, total output will contract as a result of a wage cut, and employment will fall. [5] Unfortunately, the UK is not export-focused. Combine that with government cuts and decreases to global investment, and we have stagnation in economic output (enter the double-dip recession). A Living Wage could counter some of these negative effects.

Citizenship

Ultimately, giving the employee more economic power can only be a good thing. A massive problem for the low-paid is that their choices, in economic terms, are diluted. They are forced to shop in the cheapest possible places, without any regard to the ethical or moral outcomes. Plenty of people do not buy goods with a Fairtrade mark simply because it is more expensive. Should our moral and ethical choices be limited because we are paid less? No. [6] I am not saying that we should all be paid enough so that we can go to Waitrose, or that everyone should buy free range eggs. But surely there is a problem if shoppers buy unethically because they are paid unethically?

A link between ethical consumption and the LW definitely exists. The LWC is not just about individual changes to eating more healthily, but also about wider societal efforts to create a more ethically-balanced economy. Higher wages means that spending power of the consumer could be directed towards more ethical goods – precisely those Fairtrade, free range and environmentally-friendly products that cost marginally more. Wages affect attitudes to shopping. As one commentator puts it: ‘spenders of the world, unite!’. [7] The LW could enhance exactly this sort of behaviour to create a more ethically-based capitalism.

Fighting For A Living Wage

A living wage has unparalleled benefits for living standards of employees, benefits the economic growth of this country, and can ensure that citizens become more active in their consumer choices. There are other reasons for introducing the LW. One is that it would reduce the need for taxpayers to effectively subsidise employers who pay their staff too little, because state benefits, such as working tax credits, would be reduced.

It is hugely misleading to say that the Living Wage would ‘kill business’. For most businesses – and especially in banking, IT and construction – implementing the LW would represent less than a one percent rise in overall costs; in other industries the costs are a few percentage points higher, but a phase-in could mitigate any harms. [8] Indeed, one way to increase the take-up rate would be to offer tax-cutting incentives to small- and medium-sized businesses for introducing a living wage.

Analysis has also shown that simply reducing income tax rates – touted as one alternative to the LW – is poorly targeted and cuts the British tax base even further, which would perversely increase debt (cut income tax but pay tax credits equals higher debt burden).

For all those reasons, I’m very happy that the Labour Party has announced its unequivocal support for the Living Wage and that Sheffield Labour Students supports this campaign. I’m also proud to support the Living Wage Campaign in Sheffield more generally. And I’m more than happy that Sheffield City Council will introduce a living wage for all its staff.

mg

Notes

[1] D. Hirsch and R. Moore (2011) The Living Wage in the United Kingdom, London: Citizens UK, p.4. Report available here.

[2] Ibid., p.4.

[3] For instance, see R. Wilkinson and K. Pickett (2009) The Spirit Level: Why equality is better for everyone, London: Penguin.

[4] These figures are drawn from the Living Wage Foundation. Click here for more details.

[5] J. Stanford (2008) Economics for Everyone, London: Pluto Press, pp.158-9.

[6] One very interesting example of this in action was Hugh Fearnely-Whittingstall’s Channel 4 three-part documentary, Hugh’s Chicken Run, from a few years ago. Here, local residents learnt about free range chicken, but some residents simply could not afford to eat ethical chicken – even if they wanted to.

[7] D. Jeffery (2012) ‘A Call to Arms: Spenders of the world, unite!’, Canvas 3:6. Article available here.

[8] M. Pennycock (2012) What Price a Living Wage? Understanding the impact of a living wage on firm-level wage bills, London: IPPR. Report available here.

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One thought on “The Living Wage: Supporting living standards, economic prosperity and consumer freedom

  1. Pingback: Battleground 2015: Protecting our standards of living | Colours on the Mast

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