09 Jul What is a ‘Living Wage’ and how is it worked out?
We spoke to Lisa Nathan of ShareAction as we wanted to create a post which helps more people to understand what a Living Wage is, how the Living Wage is worked out and why we believe it is important to campaign for leading high street companies to pay a Living Wage in order to create a more fair society. You can find details of our latest campaign here – Why Don’t M&S pay a Living Wage? and the results of us attending the Marks and Spencer annual general meeting with gifts for the board members here.
After reading this post, please do ask if you have any further questions in the comments, we’d love to hear from you.
Why Pay a Living Wage?
People in work are finding themselves in a position of poverty in the UK and around the globe, they just can’t afford their most basic needs. Low pay often leads to poor mental and physical health as well as social disadvantages such as personal debt and substandard housing, this affects the next generation and is not healthy for any country.
The current Conservative Government in the UK believe cutting benefits are needed in order to make work a better option than welfare. It’s only a better option when people are paid a fair wage and the Chancellor George Osborne has said that “Britain deserves a pay rise” and that the minimum wage will rise to become a living wage by 2020 as well as the tax threshold rising so that people on low wages keep more of their pay packet. In his budget announcement yesterday the Chancellor spoke of a ‘national living wage’. We recommend you read this short response by the Director of the Living Wage Foundation who argues this is not a Living Wage and they are keen to meet with the Chancellor to address their concerns and how they can help millions of workers who will still struggle without an accredited Living Wage by the Living Wage Foundation.
They have also cut corporation tax (it is currently 20% and will be 18% by 2020) We want to see companies who benefit from this tax cut pass this saving on to their workforce before 2020.
The benefits a company will gain from paying a Living Wage can outweigh the initial costs. If companies pay a living wage they will find they have a healthier and happier workforce.
- significantly improved staff retention
- staff morale
- workforce productivity
- enhanced corporate reputation
We also have a list of further reading at the end of this post where you can find out even more about the Living Wage.
How is the Living Wage calculated?
The Living Wage rate for London and for the rest of the UK are calculated separately but both based on the Minimum Income Standard calculation. They use focus groups across the UK to determine what exactly would be in the basket of the most basic needs and then cost based upon the prices nationwide. It is intended to allow for a bit of discretionary income as that’s crucial to being able to participate in community life.
How does the living wage take account of families and individuals who have very different expenses?
To take this into account, they calculate the costs for individuals, single parents and couples with children and then do a weighted average of these. It’s seen as quite fundamental to the standard that it provides enough to have a family, as more and more people on low pay are supporting families.
Why is the minimum wage currently lower than the Living Wage?
The minimum wage is based on a different calculation. It’s calculated by the government and weighs economic growth and risk of job losses if every employer was required to adopt it. The Living Wage is calculated instead to be about the actual costs of getting by and reflects those without the same risks because it’s a voluntary standard for companies to sign up to.
Will companies who pay a living wage just pass this extra cost onto the consumer?
This wont necessarily be the case, as there are plenty of places where costs could be trimmed – not least when executive pay is out of line! To the contrary, companies could stand to gain amongst their consumers. Surveys have also shown and the majority said they would pay more if the money went directly to the employee. Debenham’s for instance have even said that their consumers don’t spend enough because wages in the UK are too low.
The Living Wage does have upfront costs, but also has long-term tangible benefits in improved morale, reduced absenteeism and turnover, and improved recruitment and retention. These costs in the long-run will offset many of the costs in the short-term.
Should we abandon the minimum wage?
Lisa said that she absolutely supported a minimum wage and thinks it makes sense for it to continue to be separate from the Living Wage in order to have a floor for low pay which considers wider economic implications. The minimum wage has shown itself to be very positive over the years, but many companies can afford to do better than the legal minimum.
What are the main reasons given for a companies who don’t currently pay the living wage to employees?
The reasons vary quite a bit by sector. For most companies that Lisa has engaged with in the FTSE 100 through the Share Action Investor Collaborative, the biggest issue is with outsourced staff on their UK sites, like cleaners, caterers and security guards. Since these are arranged through third-party suppliers it takes some contract renegotiations, which is a real challenge but is achievable with time. Some companies oppose the principle for these outsourced workers to be their responsibility, but that reasoning has lost its legitimacy in the public eye and for big investors given how much risk there is to a company for its supply chain to not be properly and ethically managed.
For others, it is an affordability challenge. This is very real but surmountable with long-term time frames to work towards the Living Wage and coupling introduction of the Living Wage with improvements in operations and skilling-up of workers.
The largest issue heard from the retail sector is simply that they disagree with the calculation because they believe it should take into account wider staff rewards packages. While these rewards packages are certainly appreciated, it’s simply not a substitute for a basic hourly wage rate that allows you to take home enough cash wages to pay the bills and the rent.
The case for an American Living Wage is explained brilliantly through this Funny or Die 3minute musical of Mary Poppins (played by Kristen Bell) quiting her minimum wage job:
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