Pay
·
Living Wage

What price a living wage?

Matthew Pennycook
Matthew Pennycook

Paying a living wage is affordable for big companies in UK banking, construction, computing and food production sectors, according to this new report jointly published by the think tanks Resolution Foundation and IPPR. This new analysis shows that the average increase in the wage bill for listed companies in these sectors would be about 1 per cent or less and argues that there is no business case for ignoring living wage campaigners.

The living wage is currently set at £8.30 an hour in London and £7.20 outside London. More than 6 million people earn less than the Living Wage – around one in four UK workers.

Key findings

  • An employer’s decision to implement a living wage will rest on a range of factors but a prerequisite – in addition to any supply-side or reputational benefits that might flow from paying all their workers at least a living wage – is some sense that the introduction of a living wage will not entail exorbitant upfront wage bill increases.
  • There will, of course, also be differences in wage bill increases among firms within particular industrial sectors, just as there will be variation across industries. However, the analysis presented in this paper estimates that the average wage bill increase as a result of implementing a living wage for LSE listed firms in construction, software and computing, banking, and food production is small (an increase of around 1.0 per cent of less). Wage bill increases of this magnitude suggest that there is a strong case for listed firms in these sectors to implement a living wage as a matter of course, absorbing the additional costs through a variety of coping mechanisms or, in cases where wage bill increases are very small, through measures such as workplace reorganisation and productivity improvements.
  • For firms in the major low-wage sectors – general retail, food and drug retail, and bars and restaurants – the analysis presented here suggests that implementing a living wage is likely to be more challenging. Yet our estimates suggest that even for listed firms in these sectors a living wage is not impossible. The fact that estimated average wage bill increases across the low-wage retail sub-sectors are far smaller if an initial hourly pay rate of 90 per cent of the living wage (£7.47 in London and £6.48 elsewhere) is introduced rather than the full rate suggests that there may be realistic ways for such firms to move towards living wage accreditation. Listed firms in these sectors could commit to phasing in a full living wage over time, in order to reduce upfront costs and provide time to modify business models. The Living Wage Foundation’s accreditation process provides for flexibility, allowing employers to agree a schedule for movement toward full implementation which is based on an organisation’s circumstances.
  • In the context of emerging international evidence which suggests that – when backed up with a specific set of operating practices – investing in employees can boost customer experience and decrease costs while maintaining competitive prices,23 and anecdotal evidence from UK living wage employers which suggests that paying low-paid workers a living wage results in benefits to business, the estimates presented in this paper represent a challenge to listed firms across a range of key sectors to move towards a living wage and thereby play their part in ensuring a decent standard of living for their employees.

Further reading

Narrowing the youth gap
Exploring the impact of changes to the minimum wage on the incidence of low pay among young people
·
Louise Murphy, Esiri Bukata
Pressure on pay, prices and properties
How families were faring in October 2023
·
Mike Brewer, Felicia Odamtten, Hannah Slaughter, Hannah Slocombe, James Smith
Labour Market Outlook Q4 2023
What’s happening to pay growth?
·
Hannah Slaughter
Matthew Pennycook
Matthew Pennycook Former Senior Research and Policy Analyst