The aim of the Living Wage is to encourage businesses to pay employees £8.55 an hour in London and £7.45 elsewhere, instead of the £6.19 currently set by national minimum wage law. But is the living wage campaign a credible attempt at economic reform or largely a clever publicity gimmick?
Labour leader, Ed Miliband, never one to miss out on a populist bandwagon, has unveiled his plan to ‘name and shame’ employers who pay less than the living wage. He also wants to include the living wage in the Labour Party manifesto for the next general election.
In the interim period, does Miliband expect businesses to shell out more money when they are not legally obligated to do so?
Undoubtedly the answer is no. For one thing, he spends half his time lambasting the Tories for not helping struggling small businesses. For another, he knows businesses would never do anything to sacrifice profits unless compelled by the law.
However, this won’t stop Miliband from embarking on a rampant purge of those businesses that have the temerity to do absolutely nothing wrong.
So why is Miliband pushing the issue in the face of such surprising unwillingness to voluntarily sacrifice profits?
For the most part, the living wage campaign is a great election winning platform. It’s politically inexpensive, as politicians know firms can simply choose to turn a blind eye. At the same time, politicians get credit for supporting a public friendly campaign.
Hence why London Mayor Boris Johnson, positioned well to the right of Ed Miliband on the economic spectrum, also supports the living wage.
Electoral considerations and publicity grabbing aside, would the living wage, if formalised into law, make economic sense?
Some say increasing the minimum wage will cause unemployment. Companies that are forced to pay their staff higher wages must make sacrifices elsewhere to maintain profitability by reducing working hours and worse, sacking people.
A reduction in the number of lowest paid jobs will ensure that young and unskilled workers (including students looking for part-time jobs) lose out. Nobel Prize winning economist Milton Friedman argued that “the minimum wage is properly described as a law saying that employers must discriminate against workers who have low skills”.
For this reason, many economists argue that during our recessionary times, the minimum wage is an obstacle to combatting unemployment. Indeed, better to have a low-paying job than no job.
On top of this, opponents argue that increasing wages at the bottom will cause increased wages throughout the economy when other workers demand a proportional pay rise. This leads to inflation and increased cost to the consumer.
On the other hand, advocates argue that a living wage will help lift workers out of poverty. In a country where chief executives earn 145 times the average worker, the living wage will serve to erode Britain’s Dickensian inequality.
Supporters also point to the fact that annual income per head has decreased by 13% since 2008. This has come as a result of high unemployment, high inflation and floundering wage levels.
Like many economic issues, evidence and statistics can be gathered to lend credibility to both sides of the argument.
Unfortunately, capitalism will always have a considerable wealth disparity. Nobody wants people to live in poverty in principle, but we must temper ideals within the constraints set by our economic system. Often we forget to make a distinction between what is desirable and what is feasible.
According to the laws of supply and demand, the value of low-skilled labour is not high enough to provide a high income. The idea that someone working at McDonald’s or Tesco should be able to support a family is not one that fits within the framework of a capitalist economy.
Widespread academic uncertainty about the economic viability of the living wage stands in stark contrast to Miliband’s argument that it is definitely a good policy. And this is what makes me think that the living wage is primarily a vehicle for garnering populist support.
Senior News Reporter