Howard Reed has a new report out for Unison on the living wage. In the interests of full disclosure I should mention Howard and I have worked together a number of times, but not on this project.
I strongly recommend reading the report. It's not without its critics: Duncan Weldon at the TUC links to some alternative view here, but I am much inclined to Howard's view: I think his assumptions are realistic. His conclusion is:
This research report has shown that, using reasonable assumptions about the structure of the labour market and the current scope for economic stimulus in the UK economy, it is unlikely that the extension of the living wage to all UK employees would result in any substantial aggregate employment losses. In fact, it is quite plausible that adopting the living wage on a statutory basis could actually increase overall employment in the UK.
This is for two reasons. Firstly, previous research from the IPPR/Resolution Foundation which estimated that the immediate an across-the-board living wage would result in 160,000 job losses is almost certainly an overestimate (as the authors of the research themselves admit). Realistic assumptions about the structure of labour markets and the potential for the living wage to induce productivity gains and reduce turnover costs to businesses imply that the number of job losses arising from a statutory living wage would most likely be considerably less than that, even if there were no scope for the living wage to stimulate the macroeconomy.
The second reason — ignored in most of the previous discussions about the living wage in the UK, but critically important — is that there is considerable scope for the living wage to stimulate the economy. Unemployment and under-employment in the UK economy are at historically high levels, and recovery from the “Great Recession” of 2008-09 has been weak and patchy at best. Using recent estimates from the IMF of the effectiveness of fiscal stimulus in the recent economic depression and combining them with the UK Office for Budget Responsibility's own multiplier estimates, this report has shown that once the potential macroeconomic stimulus effects of extending the living wage to all employees are taken into account, it is more likely than not that a statutory living wage would result in a modest boost to aggregate employment.
A statutory living wage would therefore result in an economic ‘win-win' on a number of levels. It would boost demand and economic growth, reduce earnings inequality, increase the share of wages in national income, and reduce the extent to which the benefit and tax credit system has to prop up low wages to reduce in-work poverty. By insisting on a voluntary approach to extending coverage, current proponents of a living wage are being unnecessarily cautious. This report finds that a policy of extending the living wage to all employees on a statutory basis — effectively making the National Minimum Wage a “National Living Wage” — should be a priority for policymakers.
It is that second point that is key - and which is ignored by those mired in microeconomic thinking. I believe that intuitively giving several million people more disposable income and greater hope for the future is bound to stimulate the economy. What could deliver a more significant "feel good factor" than that?
The counter argument is that those who profit from the minimum wage as it now is better more than those on the lowest paid in society from the surplus their effort creates. That does not make sense using microeconomic marginal analysis and it does not make social and macroeconomic sense. I am with Howard on this one.
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It seems to me that the statutory living wage advocated by Unison is essentially a much higher minimum wage, which I would support.
I suspect that long before any jobs are threatened by a higher NMW the volume of whining and moaning from small businesses would become so deafening that no politician could have the courage to resist. This leaves a role for an additional enforceable living wage.
I propose that this should apply to:
1) the public sector, including privatised and outsourced functions still ultimately paid from the public purse.
2) Very large employers. We need a debate on the definition, but this should at least be covering the likes of Asda and Tesco.
3) Labour providers and gangmasters. The end user businesses already have to pay £9 per hour or more for this labour. If small businesses scream that a high living wage would put them out of business the simple answer then is to cut out the middle man and take responsibility for their own workforce.
So would Henry Ford be, one imagines.
Thoughts off the top of my head which might be useful, but at the very least might raise a smile.
If we had a statutory living wage, that all employees were entitled to, the whinging employer who claimed they could not ran their business efficiently enough to pay them, should be allowed to claim a government subsidy. Lets call it a government subsidy, not a tax rebate. Why should they be given a tax rebate? This would of course replace tax credits. If there were suspicions that the employer was a malingerer they would have to account for themselves to ATOS. We would then know who the real scroungers were, and the Daily Mail would have a good story that might be worth reading.
Amused
Personally I like the idea of a mandatory living wage, we seem to have arrived at a situation where benefits are required for too many people in order to retain their standard of living. In the search for where this money comes from I think the employer has to be the first port of call.
I think it would have to be brought in slowly over a five year term of small increases and some companies that compete on exports would need tax relief in order to balance their losses.
My two questions are these:-
1) As the salaries will be pushed from around £12K to around £15K by this move how much will individuals actually keep?…..After all at that level tax and NI will apply on the extra plus benefits currently received will be withdrawn, I suspect less will be kept by the individual than hoped.
2) What about all the people earning £15K to £20K?….With those below them receiving a £3K pay increase are you really saying they will be happy to stay on their current salaries?………….If everybody below median just pushes up in pay will not inflation and housing costs eat up all the extra?
Until the grip of the transnationals is released we don’t stand a chance of change.
This will affect housing costs for people renting and buying.
However people who buy to let, will get an increase in their return on the property. Back to the late 90’s when you could get a real return from renting out a house.
Maybe there is more to this scheme than has already been thought out.
A surefire proven way of getting the economy moving is to put money into the pockets of ordinary working people who will, in the main, not hoard it, but go out and spend it!
More money circulating equals a bigger tax take for the government, more money to be captured by business and more goods and services bought.
There will be little movement until this happens!
Interesting.
The “living wage” will almost certainly be lower in many regions than in the large metropolitan areas/regions/towns.
Would that start a dash-for-less-cash (moving house/business for more pay/lower payment)?
The immediate benefit [sic] for government would be lower benefits, but at a cost of increased “business benefit” (tax rebate/s).
So we’re into increasing wages and therefore personal benefit, at a cost of paying increased corporate benefit, which is into the realm of minimal increase at maximum cost surely?
Higher consumer spending is of little use in the medium term if it is spent on imported goods.
And since the minimum wage is largely unenforced we can expect the living wage to be the same.
Unless you had not noticed, the persons comprising the government, and the government-in-waiting, and the other lot in government who nobody wants anyway, are all “captured” by the corporate sector?
I must take issue with “largely unenforced”. HMRC is under resourced for NMW enforcement and could do great things with extra money. It’s certainly not enforcing NMW in hand car washes, and probably not well in ethnic restaurants or other trades where workers will back up lies told by employers. It does not have enough resources to cope with the scandal in domiciliary care, or with umbrella companies or bogus self-employment.
We should not lazily slip form this to “largely unenforced”. Most employers pay NMW, and the enforcement effort is a problem for those who do not. HMRC look at every complaint of non-payment. They secure NMW for all workers who are prepared to keep a record of their hours and give evidence that they have been underpaid.
It would need some extra enforcement resources, but it is definitely possible to enforce a living wage.