Callum MacRae: In Defence of the Living Wage

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Since its revival by a coalition of community groups in London’s East End in 2001, the living wage movement has been slowly but steadily gaining ground, both in terms of its application and its publicity. It has earned widespread, cross-party support and is being implemented by a variety of companies, councils and universities across the country. However, the idea has not been entirely without its opponents, or without obstacles to its implementation. For a variety of reasons, the movement has come under criticism, from both the Left and the Right. In this article I would first like to clarify what the living wage is, then outline some evidence to support it as tool for fighting poverty. I will discuss why common criticisms against it fail; and, finally, how it should be viewed as part of a broader campaign to improve working conditions and living standards for low-earners in Britain. The living wage campaign is by no means a complete solution to poverty and power imbalances in industrial relations. But I hope to make clear that it is a powerful tool, both to directly improve the lives of some of the poorest and most vulnerable in British society, and to empower those areas of the labour market which have most suffered from the assaults on workers’ rights and workers’ collective power in the neo-liberal turn of the late seventies and early eighties. The scepticism shown by parts of the Left towards the living wage movement is misplaced – even though it is perhaps laudable for its display of caution and critical awareness when approaching an area of possible cooperation with employers. Anyone who seeks to improve the lives of those living in poverty in the UK should do all they can to support the campaign.

What is the Living Wage?

The living wage, as defined by the Living Wage Foundation, is a figure, calculated annually by the Institute for Research in Social Policy at Loughborough University for the UK (and by the Greater London Authority (GLA) living wage unit for London). It is designed to reflect the pre-tax wage level necessary to purchase a basket of goods deemed essential to live at a minimum acceptable standard of living. The content of this basket of goods is based on the results of focus groups, carried out in conjunction with the Joseph Rowntree Foundation. This method is used to arrive at a judgement about a socially acceptable minimum standard of living – and the figures are revised upwards every year, in line with inflation. At present the UK figure is £7.45 an hour, and the London figure is £8.55 an hour. The National Minimum Wage is currently at £6.19 an hour. To qualify as an accredited Living Wage Employer, a company must pay at least the living wage to all of its staff, including individuals who work on a regular basis for a subcontractor, such as cleaners or security staff.(1)

The living wage differs from the minimum wage in two key respects. First, the minimum wage is primarily based upon market conditions. It is set at a level which the Low Pay Commission believes that the lowest paying sectors of the economy can bear without a significant effect on employment. The living  wage, in contrast, is based on a notion of a minimum socially acceptable standard of living. Second, the minimum wage is statutory (though not without legal exemptions), whereas the current policy of the Living Wage Foundation is to encourage a voluntary living wage. As such, the living wage movement is dependent upon campaign groups to apply the necessary pressure on employers – agitation from below rather than from above. Living wage campaign groups have, consequently, the potential to go beyond pay issues: this is one of their greatest strengths. Even if it is difficult to generalise across a diverse range of group structures and approaches (some groups are based within communities, such as faith groups; some work closely with unions; some are specifically living wage-oriented; others have  broader goals, concerning working conditions and higher pay), many living wage campaigns have encouraged increasing organisation among workers at the bottom end of the pay scale. It is no coincidence that those workers who are most likely to earn less than the living wage work in sectors associated with high turnover and low unionisation rates (sectors such as hospitality, and the service sector more generally). The living wage campaign can serve to facilitate worker organisation in these areas of the economy – thus, it could create the structures necessary to look beyond the living wage, if and when it is achieved. The living wage movement is not just a campaign to apply pressure on employers to pay at least a minimum socially acceptable wage, but also a means to increase worker organisation and a means to redress the considerable power imbalances within the British industrial landscape.

Why support the Living Wage Campaign?

The appeal of the living wage seems intuitive – a means to raise the income of some of the poorest in society appears to be a moral no-brainer. Yet it is worth reviewing the evidence, both for the sake of persuading sceptics and in order to highlight the extent to which the living wage is a powerful tool for improving living standards. First, it is important to note that, compared to other advanced economies, the UK has exceptionally high levels of low pay, with approximately 20% of all workers being paid less than the living wage in 2011. The national average also masks considerable variations among different demographic groups. For instance, 76% of all workers aged 16-20, 68% of all UK workers in the hospitality sector, and 25% of all female workers are being paid less than the living wage in 2011.(2) These figures have been steadily rising since the eighties, and there is no evidence to suggest that the trend is slowing. Low pay is endemic in the UK, and the living wage can begin to reverse this dangerous pattern.

Second, studies that have been carried out on the living wage show that it has a remarkable impact on the lives of low paid workers. The Geography Department at Queen Mary, University of London, produced a report in 2006, which shows significant impacts of a wage rise, from just above the minimum wage to just above the living wage, on a group of workers at the Royal London Hospital.(3) The study revealed, as expected, that the workers were better able to afford basic necessities, such as food and clothes, after the wage increase. Though more research needs to be done in this area, the available evidence shows that there are strong links between the introduction of a living wage and significant improvements in living standards for workers on low pay.

Thirdly, as outlined above, the living wage campaign has the potential to act not simply as a treatment for the symptoms of low pay, but also to remedy one of its key underlying causes: power imbalances in the industrial landscape of the UK. As I have mentioned, the living wage movement can provide – and, in some places, has provided – a basic structure for further worker organisation and agitation. It can also equip workers with the necessary skills to engage in these activities. In London, for example, the campaign led by the East London Community Organisation (a branch of London Citizens) worked in collaboration with local unions, not just to successfully pressure many major financial and legal institutions in the City into becoming Living Wage Employers, but also to create and maintain networks of activists and workers, which have since been used in mobilising support for other campaigns beyond the workplace.(4) Similarly, in Baltimore, an alliance between a union and a community organisation mobilised the support of low-income, predominantly black neighbourhoods of the city, where unions had traditionally had a low presence, not only to campaign for the introduction of the 1994 Living Wage Ordinance, but also to secure other gains for low-paid workers, such as increased job security and stronger rights to organise in public places.(5) The evidence therefore suggests that the living wage is at once a very powerful tool for improving living standards in the short term – simply by giving people the means to afford basics like food, clothing and shelter – and a means for encouraging the development of longer term solutions for problems of low pay and poverty, mainly by facilitating organisation and activism among communities which might not have had any prior experience in such activities.

Criticisms of the Living Wage and Why They Fail

Though the living wage has attracted considerable and widespread support in recent years, it has not been without its critics. Four general forms of argument, in particular, frequently recur on blogs and in newspaper comment sections. I hope to show, here, that while some arguments deserve more credit, none succeed in presenting a good argument against supporting the living wage campaign.

   1. ‘A living wage will lead to job losses. Thus, any alleviation of poverty levels for workers will be offset by increases in unemployment.’

The first flaw in this argument lies in its empirical claim about the direct effect of a living wage on employment. As I have explained, the living wage campaign pressures employers into paying the living wage, but does not campaign for a national statutory living wage. Thus, in cases where significant job losses would be incurred from the living wage, different agreements and compromises could be found. But the evidence still suggests that such cases are very rare. In the recent IPPR report ‘Beyond the Bottom Line: The Challenges and Opportunities of a Living Wage’ it was estimated that, even if a national statutory living wage were put in place, job losses would only amount to 160,000 at the very worst; a considerable figure, but one which is very small compared to the current number of workers earning less than the living wage (almost 5 million). Furthermore, the living wage campaign can contribute to the establishment of increased job security and job protection for workers at risk of unemployment. There is additional evidence to support the claim that the living wage itself will boost productivity: for instance, 83% of London living wage employers report that the living wage has enhanced the quality of their staff; 67% report an increase in output per worker per hour; and 50% report intensified work effort.(6) There are strong indications that employers would absorb the small extra costs of paying higher wages by raising productivity, as occurred after the National Minimum Wage came into effect in 1999.

   2. ‘A voluntary scheme will never induce businesses to change their ways – the living wage should be statutory.’

First, it is manifestly untrue that a voluntary scheme will never induce businesses to change their ways, as many have done so in response to the campaigning of living wage groups, including Lloyd’s of London, HSBC and KPMG. By generating negative publicity for businesses that don’t pay the living wage, campaigning can make it in an employer’s own interests to become a living wage employer, particularly given the relatively low costs associated with switching to the living wage. Furthermore, as more organisations sign up to the living wage, the pressure on other businesses will only increase. Although caution and critical awareness are, of course, always necessary when cooperating with employers, this should not be an excuse for a blind rejection of any form of cooperation when it is in the mutual interests of both parties. Secondly, if the living wage movement campaigned for a statutory living wage the arguments of neo-classical economists about the damage to the economy of a higher wage floor (whether they are misguided or not) would gain strength in the public arena, and could cause a significant decline in support for the idea, support which is vital to maintain the pressure needed to make the living wage reality. Thirdly, a top-down, statutory living wage would destroy the campaign’s potential to act as a means to facilitate community organisation and thus to improve and protect working conditions and workers’ rights in the future. This aspect of the living wage – its potential to re-empower (or in many cases, simply to empower) areas of the workforce that have little or no collective protection from the poverty that is endemic amongst the low-paid – is one of the most attractive features of the movement, and would be undermined if the debate was taken out of the localised context of particular employers and turned into a national issue focused on central government policy.

   3. ‘The living wage is a fine idea for banks such as Lloyds and HSBC, which employ few low-paid workers, but it will never be acceptable for industries with large numbers of low-paid workers.’ 

First, it is worth noting that the arguments about company image mentioned above are equally applicable here – if the costs of switching to the living wage are higher for particular businesses, successful living wage campaigning can still create enough consumer demand for living wage accreditation that it is in such businesses’ interest to seek accreditation. Secondly, the empirical assumption that switching to the living wage is more costly for businesses with large numbers of low-paid workers is by no means certain. Owing precisely to the fact that the living wage can potentially cause problems for such companies, they tend to introduce more radical reappraisals of their business strategies, and consequently manage to create more efficiency savings – in response to the introduction of the minimum wage in the UK, for example, it was larger firms that made the greatest productivity gains.(7)

   4. ‘The living wage distracts attention away from the truly needy: the unemployed.’

There is an important point in this argument – that in absolute terms the living wage benefits middle-income households more than low-income households (though in proportional terms the poorest are the greatest beneficiaries),(8) owing to the large numbers of unemployed people in the latter group – but it is not a good reason to abandon the campaign. The living wage by no means precludes other actions to improve the lives of those in poverty without jobs. On the contrary, it helps organise communities with low levels of job security and high levels of unemployment, creating the networks necessary for campaigns linked to out-of-work, as well as in-work, poverty. The high numbers of unemployed people in the UK, however, should be great cause for concern, and it should always be remembered that the living wage should be conceived of as a part of the solution to the problems of poverty and low pay, not the solution.

Conclusion

The living wage campaign is thus both a powerful tool for the immediate improvement of pay and living standards for those on low pay, and a means to encourage longer-term agitation for better working conditions. However, it is not without its limitations, and should consequently always be seen in the broader context of the struggle against poverty and inequality. First, the living wage is a tool that primarily benefits low- and middle-income earners, a group that is by no stretch of the imagination insignificant, but one which excludes the long-term unemployed, who are at an even greater risk of falling into poverty. Though the living wage campaign does not preclude, and in many ways actually facilitates action to help the long-term unemployed, campaigners and supporters alike must nonetheless always retain an awareness that a living wage is of little use to those without a wage at all. Secondly, it should be remembered that despite the importance of pay, there are other tools for the alleviation of poverty which the living wage campaign should support and encourage – most notably the empowerment of workers through community organisation, but also cooperation and collaboration with trade unions, anti-austerity campaign groups and other sites of resistance to the relentless attacks on the economic, social and political position of the poor within British society over the last three decades.

None of these points about the importance of contextualising the living wage gives us any reason to be reluctant in lending support to the campaign. The fact that the living wage alone will not cure all of capitalism’s ills is no reason to abandon it – especially given the proclivity of living wage campaigns to foster and encourage the growth of other such alternative solutions. Any sections of the British Left still timid in their support must wake up to the strong evidence for the living wage campaign’s potential both to dramatically improve the lives of some of the worst off in society and to serve as an important point of departure for further exercises in collective action, in order to win additional vital victories. There are currently millions of workers in the United Kingdom who are struggling to afford food and clothes, struggling to pay the rent, struggling to provide for their children, struggling to pay their debts. If we make sure that they do not struggle alone, there is a real possibility that together we could create tangible and lasting improvements to the lives of some of those who most desperately need them. •

Callum MacRae is a first year student of Politics, Philosophy and Economics at Wadham College and College Liaisons Officer for the OUSU Living Wage Campaign.

1   http://www.livingwage.org.uk/employers

2   Lawton, K and Pennycook, M, Beyond the Bottom Line: The Challenges and Opportunities of a Living Wage, IPPR, 2013, pp 66-68. (http://www.ippr.org/images/media/files/publication/2013/01/beyond-bottom-line_living-wage_Jan2013_10162.pdf)

3   Sokol, Wills et al, The Impact of Improved Pay and Conditions on Low-Paid Urban Workers: The Case of the Royal London Hospital, Queen Mary University of London Department of Geography, 2006, pp 8-13. (http://www.geog.qmul.ac.uk/docs/staff/58801.pdf)

4   Wills, J, ‘Making Class Politics Possible: Organising Contract Cleaners in London’, International Journal of Urban and Regional Research, vol. 32, no. 2, 2008, pp 305-323. (http://www.geog.qmul.ac.uk/livingwage/pdf/IJURRpaper.pdf)

5   Fine, J, ‘Community Unions and the Revival of the American Labour Movement’, Politics and Society, vol. 33, no. 1, 2005 pp 178-179.

6   Lawton, K and Pennycook, M, Beyond the Bottom Line: The Challenges and Opportunities of a Living Wage, IPPR, 2013, pp 33-34. As outlined in the statistics cited earlier from the Queen Mary University of London study, these productivity gains do not necessitate vastly increased psychological pressure for workers, with over 87% of the workers interviewed in the study claiming that their lives had improved as a result of the wage increases – from the available evidence, productivity increases in these situations are better understood as the result of more contented workers contributing more than as managers attempting to get their money’s worth through increased disciplining and work-loads. See Lawton and Pennycook, pp33-34.

7   Lawton, K and Pennycook, M, Beyond the Bottom Line: The Challenges and Opportunities of a Living Wage, IPPR, 2013, p33.

8   Lawton, K and Pennycook, M, Beyond the Bottom Line: The Challenges and Opportunities of a Living Wage, IPPR, 2013, p39.

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