{"id":23000,"date":"2013-11-06T08:11:28","date_gmt":"2013-11-06T08:11:28","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=23000"},"modified":"2013-11-06T08:11:28","modified_gmt":"2013-11-06T08:11:28","slug":"paying-the-living-wage-could-increase-employment","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2013\/11\/06\/paying-the-living-wage-could-increase-employment\/","title":{"rendered":"Paying the living wage could increase employment"},"content":{"rendered":"

Howard Reed has a new report out for Unison on the living wage<\/a>. In the interests of full disclosure I should mention Howard and I have worked together a number of times, but not on this project.<\/p>\n

I strongly recommend reading the report. It's not without its critics: Duncan Weldon at the TUC links to some alternative view here<\/a>, but I am much inclined to Howard's view: I think his assumptions are realistic. His conclusion is<\/a>:<\/p>\n

This research report has shown that, using reasonable assumptions about the\u00a0structure of the labour market and the current scope for economic stimulus in the UK\u00a0economy, it is unlikely that the extension of the living wage to all UK employees\u00a0would result in any substantial aggregate employment losses. In fact, it is quite\u00a0plausible that adopting the living wage on a statutory basis could actually increase\u00a0overall employment in the UK.<\/em><\/p>\n

This is for two reasons. Firstly, previous research from the IPPR\/Resolution\u00a0Foundation which estimated that the immediate an across-the-board living wage\u00a0would result in 160,000 job losses is almost certainly an overestimate (as the authors\u00a0of the research themselves admit). Realistic assumptions about the structure of\u00a0labour markets and the potential for the living wage to induce productivity gains and\u00a0reduce turnover costs to businesses imply that the number of job losses arising from\u00a0a statutory living wage would most likely be considerably less than that, even if there\u00a0were no scope for the living wage to stimulate the macroeconomy.<\/em><\/p>\n

The second reason \u2014 ignored in most of the previous discussions about the living\u00a0wage in the UK, but critically important \u2014 is that there is considerable scope for the\u00a0living wage to stimulate the economy. Unemployment and under-employment in the\u00a0UK economy are at historically high levels, and recovery from the \u201cGreat Recession\u201d\u00a0of 2008-09 has been weak and patchy at best. Using recent estimates from the IMF\u00a0of the effectiveness of fiscal stimulus in the recent economic depression and\u00a0combining them with the UK Office for Budget Responsibility\u2019s own multiplier\u00a0estimates, this report has shown that once the potential macroeconomic stimulus\u00a0effects of extending the living wage to all employees are taken into account, it is\u00a0more likely than not that a statutory living wage would result in a modest boost to\u00a0aggregate employment.\u00a0<\/em><\/p>\n

A statutory living wage would therefore result in an economic \u2018win-win\u2019 on a number\u00a0of levels. It would boost demand and economic growth, reduce earnings inequality,\u00a0increase the share of wages in national income, and reduce the extent to which the\u00a0benefit and tax credit system has to prop up low wages to reduce in-work poverty. By\u00a0insisting on a voluntary approach to extending coverage, current proponents of a\u00a0living wage are being unnecessarily cautious. This report finds that a policy of\u00a0extending the living wage to all employees on a statutory basis \u2014 effectively making\u00a0the National Minimum Wage a \u201cNational Living Wage\u201d \u2014 should be a priority for\u00a0policymakers.<\/em><\/p><\/blockquote>\n

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?<\/p>\n

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.<\/p>\n","protected":false},"excerpt":{"rendered":"

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
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35,1],"tags":[],"class_list":["post-23000","post","type-post","status-publish","format-standard","hentry","category-economics","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/23000","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=23000"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/23000\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=23000"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=23000"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=23000"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}