The ‘Living Wage’ stimulates a great deal of debate amongst employers and economists. For some it is about creating an economic environment whereby those who are traditionally in low paid jobs receive a wage which enables them to have a decent standard of living.
To others it is a dangerous trend in creating a framework which does not encourage sufficient flexibility for employers in deciding how much they should pay employees and ultimately increases labour costs which eats into profitability.
There are so many myths and legends regarding the living wage that we thought it appropriate to try and clarify the key issues.
So what is the living wage? According to the Living Wage Foundation website it is an hourly rate calculated according to the basic cost of living in the UK. The living wage rate is set independently and updated annually. Employers can currently choose whether to pay it or not.
The effectiveness and suitability of a wage floor has been addressed by a number of nation states across the globe. It is interesting to note that a national minimum wage has been in operation in the United States for a significant period and Germany has recently introduced a national minimum wage. Both models of economic accumulation are very different yet both have adopted a wage floor as part of their respective economic models.
Is having a living wage the way forward? Well we already have a national minimum wage that is embedded and functioning – has it had a negative impact or does this provide a spring board for a living wage?
It is clear, that having some type of “pay floor” is not to the economic detriment of a nation state. The argument that having a national minimum wage or living wage had an impact on economic efficiency was disproved by David Card and Alan Krueger of America’s National Bureaux of Economic Research. They presented evidence that past minimum wage increases did not have a negative effect on employment levels. A 2010 report by the Centre for Economic Performance at the London School of Economics found that a minimum wage had negligible impact on employment figures and therefore could not be seen as an implement to economic efficiency.
There are other ‘broader’ potential benefits to a living wage noticeably:-
· Employees will have a greater level of disposable income which contributes to economic activity in the broader economy;
· It can assist in cementing a stronger relationship with employers as the worker feels ‘respected’ for their contribution ; and
· An independent study based on employers in London found that the employers adopting the living wage saw a drop in absenteeism of 25%.
It is clear that there are persuasive arguments both economic and cultural for the roll-out of a national living wage. Many employers have taken this step. With an election looming the issue may well experience a rise up the political agenda.
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