Ryan Bourne

Let’s have more work and lower costs to raise living standards – the Living Wage won’t help

In the latest in a long-line of Commissions or studies into the roll-out of a ‘Living Wage’, today the Archbishop of York Dr John Sentamu has called for the introduction of a wage rate of £7.65 per hour (or £8.80 in London) in sectors that ‘could afford it’. In reality this means the public sector and a host of other industries where there aren’t many low paid individuals, such as accountancy, consultancy, banking and construction. Though not as damaging as an economy wide roll-out, if adopted this could still have a host of unintended consequences.

For those who’ve been hibernating in Outer Mongolia for the last few years, the Living Wage is a campaign that presses for a wage rate such that the average household working full time (based on weighting of different types) has an adequate level of earnings for warmth, shelter, a healthy diet and social integration – hence the higher level for London. Unlike the National Minimum Wage (NMW), it is not compulsory, but merely part of the rich civil society means of influencing wage setting. So far a number of private sector employers have signed up voluntarily, as have some local authorities – but now campaigners have their sights on wider rollout.

Like higher minimum wages, the big danger of Living Wages are job losses or reduction in hours. Unlike the NMW, the Living Wage is not set with any reference of employer ability to pay and previous work by NIESR has suggested net job losses of 150,000 (with 300,000 fewer young low-skilled workers employed due to worker substitution) were there an economy-wide rollout. Certain industries, like bars, restaurants and retailing would see significant cost increases—of circa 5 per cent—were the Living Wage rate adopted on a statutory basis.

Sensibly then, John Sentamu’s Commission rejected the idea of setting the Living Wage on a statutory basis.

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