Making pay work: can the living wage provide a comprehensive route to improving living standards?

Earlier this month, the living wage campaign celebrated its ten year anniversary with a gathering of two and half thousand supporters in central London. It is an important time for the movement, as it seeks to significantly extend the scope of the living wage by targeting major low-wage employers. Achieving this ambition is likely to raise new challenges, pointing to the need for a better understanding of the costs, benefits and potential trade-offs of the concept.

The first decade has delivered many successes at the individual company level, though progress towards a widespread introduction of a living wage has been modest. In the capital, campaigning by London Citizens has encouraged more than 100 firms employing almost 10,000 workers to adopt the standard. However, across the country3.5 million workers continue to earn less than £7 an hour, including two-thirds of employees in the hotels and restaurants sector and half of those in retail and wholesale – contributing to the injustice of in-work poverty. If adoption of the measure continues at the same pace over the next ten years, the campaign will barely scratch the surface of the low-wage problem.

This is not to suggest that the living wage movement should be abandoned; rather it should be built upon. Challenging the character of the UK labour market, with its persistent long tail of firms operating low-value, low-productivity business strategies, and improving the earnings of the lowest paid workers is an a priori good, so long as it is consistent with maintaining high levels of employment. The living wage therefore has the potential to contribute to a comprehensive strategy to improve households’ standards of living. However, its definition and the route to achieving it remain under-interrogated.

Achieving significant scale in the face of commercial resistance requires asking difficult questions about where the pinch-points occur in relation to employment, profitability and wage-progression across different sectors. For example, the only supermarket that pays the living wage, Aldi, is able to do so because its business model means that it employs relatively few people. Campaigners need to be able to respond to the concern that the living wage will never be compatible with employment in such industries. Equally, they need to be armed with evidence about the potentially positive economic impacts flowing from higher salaries, an increased tax take and reduced tax credit payments.

A similar approach has long-underpinned the development of the National Minimum Wage, with analyses of businessand employment effects serving to shed light on real trade-offs and exploding myths around perceived ones, and generally helping to improve the policy.

Assessing what different strategies could be used to pursue the goal of a living wage – from legislation to kite-marks to tax incentives – requires a much deeper appreciation of such issues than currently exists. Developing this understanding is precisely the aim of a new joint Resolution Foundation and IPPR project– Making pay work: exploring the role of the living wage in improving living standards. The project, launched today with an expert roundtable bringing together key thinkers in this area, will run between now and the autumn, drawing on existing and original work to significantly improve the evidence-base around the impacts of the living wage and establish a realistic role for the living wage in reducing in-work poverty.

Alongside the announcement of the annual up-rating of the London living wage level to £8.30 an hour, this month’s anniversary rally marked the introduction of a non-London living wage of £7.20 an hour, the start of a campaign aimed at the FTSE-100 companies and the launch of the Living Wage Foundation, which is designed to promote, inform and help workers and firms with the practical implementation of the policy. The living wage has much to offer and its momentum appears to be growing but, if in its second decade it is to make a genuine difference to the lives of the millions of individuals in the UK unable to work their way towards an acceptable standard of living, then it must submit itself to a rigorous and objective test of its merits and limitations. That is what we intend to provide. If you’d like to offer your thoughts then please get in touch – we’d love to hear from you.