Each year in November, the Living Wage Foundation publishes figures for the hourly living wage that is necessary for people to meet basic bills. The rate for London is calculated by the Greater London Authority and for the rest of the UK by the Centre for Research in Social Policy at Loughborough University.
The 2013 update was published on 4 November. The Living Wage was estimated to be £8.80 in London and £7.65 in the rest of the UK.
Two things need to be noted about the Living Wage rate. The first is that the figure is an average and thus does not take into account the circumstances of an individual household. Clearly households differ in terms of their size, the number of wage earners and dependants, the local costs of living, etc. Second, the figures have been reduced from what is regarded as the ‘reference’ living wage, which is estimated to be £9.08 outside London. The reason for this is that people earning higher incomes have seen their living standards squeezed since 2009, with prices rising faster than average post-tax-and-benefit wages. Thus, the Living Wage is capped to reflect the overall decline in living standards. As the Working Paper on rates outside London explains:
From 2012 onwards, two kinds of limit have been put on the amount that the Living Wage as applied can rise in any one year. The first limits the increase in the net income (after taxes and benefits) requirement for each household on which the living wage calculation is based, relative to the rise in net income that would be achieved by someone on average earnings. The second limits the increase in the living wage itself (representing gross income) relative to the increase in average earnings.
Nevertheless, despite this capping of the living wage, it is still significantly higher than the UK National Minimum Wage, which currently stands at £6.31 for those aged 21 and over. This can be seen from the chart (click here for a PowerPoint).
Paying the Living Wage is voluntary for employers, but as The Guardian reports:
A total of 432 employers are now signed up to the campaign, up from 78 this time last year, including Legal & General, KPMG, Barclays, Oxfam, Pearson, the National Portrait Gallery and First Transpennine Express, as well as many smaller businesses, charities and town halls. Together they employ more than 250,000 workers and also commit to roll out the living wage in their supply chain.
But as The Observer reports:
The number of people who are paid less than a ‘living wage’ has leapt by more than 400,000 in a year to over 5.2 million, amid mounting evidence that the economic recovery is failing to help millions of working families.
A report for the international tax and auditing firm KPMG also shows that nearly three-quarters of 18-to-21-year-olds now earn below this level – a voluntary rate of pay regarded as the minimum to meet the cost of living in the UK. The KPMG findings highlight difficulties for ministers as they try to beat back Labour’s claims of a “cost of living crisis”.
According to the report, women are disproportionately stuck on pay below the living wage rate, currently £8.55 in London and £7.45 elsewhere. Some 27% of women are not paid the living wage, compared with 16% of men. Part-time workers are also far more likely to receive low pay than full-time workers, with 43% paid below living-wage rates compared with 12% of full-timers.
But although paying a living wage may be desirable in terms of equity, many firms, especially in the leisure and retailing sectors, claim that they simply cannot afford to pay the living wage and, if they were forced to, would have to lay off workers.
The point they are making is that it is not economical to pay workers more than their marginal revenue product. But this raises the question of whether a higher wage would encourage people to work more efficiently. If it did, an efficiency wage may be above current rates for many firms. It also raises the question of whether productivity gains could be negotiated in exchange for paying workers a living wage
These arguments are discussed in the following podcast.
Podcast
Higher ‘productivity’ will increase living wage BBC Today Programme, Priya Kothari and Steve Davies (4/11/13)
Articles
UK living wage rises to £7.65 an hour The Guardian (4/11/13)
More than 5 million people in the UK are paid less than the living wage The Observer, Toby Helm (2/11/13)
Increasing numbers of Scots are paid less than living wage Herald Scotland (2/11/13)
Labour would give tax rebates to firms that pay living wage Independent, Jane Merrick (3/11/13)
Employers praise Ed Miliband’s living wage proposal Independent, Andy McSmith (3/11/13)
Miliband’s living wage tax break will raise prices, warns CBI chief The Telegraph, Tim Ross (3/11/13)
Living Wage rise provides a boost for low paid workers BBC News (4/11/13)
Information and Reports
What is the Living Wage? Living Wage Foundation
The Living Wage Centre for Research in Social Policy, Loughborough University
Living wage Mayor of London
One in five UK workers paid less than the Living Wage KPMG News Release (3/11/13)
Number of workers paid less than the Living Wage passes 5 million KPMG News Release (3/11/13)
Living Wage Research for KPMG Markit (October 2012)
Questions
- How is the Living Wage calculated?
- What are the reasons for announcing a Living Wage figure that is lower than a reference living wage? Assess these reasons.
- If there are two separate figures for the Living Wage for London and the rest of the UK, would it be better to work out a living wage for each part, or even location, of the UK?
- Why might it be in employers’ interests to pay at least the Living Wage? Does this explain why more and more employers are volunteering to pay it?
- Assess the Labour Party’s pledge, if they win the next election, that ‘firms which sign up to the living wage will receive a tax rebate of up to £1000 for every low-paid worker who gets a pay rise, funded by tax and national insurance revenue from the higher wages’.
- Which is fairer: to pay everyone at least the Living Wage or to use tax credits to redistribute incomes to low-income households?
Despite the prolonged stagnation in the UK, unemployment has not soared. In fact, over the past two years the ILO unemployment rate (see here for a definition) has fallen slightly – from 8.6% in October 2011 to around 8.0% today. What is more, the claimant count rate is considerably lower than the ILO rate – at around 4.4%.
Part of the reason for the relatively good unemployment figures is the rise in ‘zero-hours contracts’. These allow employers to cut the hours that people work without laying them off. The Office for National Statistics estimates that last year (2012) 250,000 people, or 0.84% of the workforce, were on such contracts.
But just what is meant by ‘zero-hours contracts’? According to the ONS:
People on zero-hours contracts are classified as being in employment regardless of the number of hours they actually worked during the survey reference week. This includes anyone who was not required to work any hours during the reference week whilst remaining on their current contract of employment. The continued existence of the contract of employment is the key determinant of their employment status in these situations.
If people are working less than they would like to, this is classified as underemployment, but such people do not appear in the unemployment statistics. Such contracts thus mask the true extent of surplus labour in the economy.
The Chartered Institute of Personnel and Development (CIPD) puts the figure much higher than the ONS. In the Summer 2013 issue of its Labour Market Outlook, it estimates that one million workers are on zero-hours contracts.
Many employers use such contracts, including many voluntary-sector and public-sector organisations, including the NHS, local councils and Buckingham Palace. They are also used by many small and medium-sized enterprises and many well-known large companies, such as Sports Direct, Amazon, JD Wetherspoon and Cineworld. It gives them the flexibility to adjust the hours they employ people. It allows them to keep people in employment when demand is low. It also makes them more willing to take on staff when demand rises, as it removes the fear of being over-staffed if demand then falls back.
But many workers dislike such contracts, which give them fewer employment rights and fewer hours than they would like to work. It also makes it difficult to budget when future income is uncertain. It also make credit and mortgages harder to obtain, as people have no guaranteed income. Another complaint is that companies may use the threat of lower hours as a tool to bully staff and get away with poorer working conditions.
In May of this year, the Business Secretary, Vince Cable, announced that he was setting up a review of zero hours contracts.
Note that zero hours are not the only form of flexible working. Other examples include: ‘self-employed’ workers, contracted separately for each job they do for a company; people paid largely or wholly on commission; on-call working; part-time working, where the hours are specified in advance, but where these are periodically re-negotiated; overtime; people producing a product or service for a company (perhaps at home), where the company varies the amount paid per unit according to market conditions.
The following videos and articles look at the issue in some detail: at the extent of the practice and at its benefits to employers and its costs (and some benefits) to workers. Both The Guardian and the BBC have an extensive range of articles on the topic.
Webcasts
Do zero hours contracts create real jobs? BBC Newsnight, Allegra Stratton (14/8/12)
Record number of ‘Zero Hours Contracts’ ITV News on YouTube, Laura Kuenssberg (2/5/13)
Britons rally against ‘Zero Hour’ contracts Al Jazeera on YouTube (4/8/13)
Anger at Amazon working conditions Channel 4 News (1/8/13)
Government to include Amazon in its zero hours probe Channel 4 News (2/8/13)
Councils using zero hours contracts BBC London, Warren Nettleford (31/7/13)
Podcasts
The real economy: Labour market BBC Today Programme, Evan Davis (24/8/11)
Zero hour contracts ‘just the norm’ BBC Today Programme, Rochelle Monte and Peter Cheese (5/8/13)
Articles
Zero-hours contracts: One million British workers could be affected Independent, Nigel Morris (5/8/13)
Zero hours contracts “spreading like wildfire”, official stats show Union News, Pete Murray (1/8/13)
Zero-hours contracts: what are they? The Guardian, Phillip Inman (30/7/13)
Buckingham Palace uses zero-hours contracts for summer staff The Guardian, Simon Neville, Matthew Taylor and Phillip Inman (30/7/13)
Nick Clegg: business department will investigate zero-hours contracts The Guardian,
Patrick Wintour, Simon Neville, Matthew Taylor and Phillip Inman (31/7/13)
Zero-hours contracts are not unavoidable The Guardian, Phillip Inman (1/8/13)
ONS admits it underestimated number of zero-hours contracts The Guardian, Simon Neville (1/8/13)
Zero-hours contract workers – the new reserve army of labour? The Guardian, Philip Inman (4/8/13)
Zero-hours contracts cover more than 1m UK workers The Guardian, Simon Goodley and Phillip Inman (5/8/13)
Zero-hours contracts use by councils needs to be moderated The Guardian, Vidhya Alakeson (5/8/13)
If zero-hours contracts are driving this ‘recovery’, it’s a lousy kind of recover The Guardian, Deborah Orr (9/8/13)
ONS increases its estimate of workers on zero hours contracts Financial Times, John Aglionby (1/8/13)
Zero Hours Herald Scotland, Ian Bell and Scott Dickson (4/8/13)
Sports Direct protests planned over zero hours contracts Channel 4 News (3/8/13)
Cable warns of exploitation of zero-hours contracts BBC News (5/8/13)
Q&A: What are zero-hours contracts? BBC News (5/8/13)
Record number of 16-24s on zero hours contracts at work BBC Newsbeat, Jim Reed (15/5/13)
Figures show 18-24s most likely on zero-hours contract BBC Newsbeat, Jim Reed and Amelia Butterly (5/8/13)
Andy Burnham calls for ban on zero hours contracts BBC News (28/4/13)
Zero-hours contracts: What is it like living on one? BBC News, Sean Clare (5/8/13)
Small Talk: Zero-hours contracts? Key for growth Independent, David Prosser (5/8/13)
Zero Hour Contracts Manchester based law firm, Emma Cross (30/7/13)
Data
People and proportion in employment on a zero-hour contract ONS (31/7/13)
Estimating Zero-Hour Contracts from the Labour Force Survey ONS (26/7/13)
One million workers on zero hours contracts, finds CIPD study CIPD, Michelle Stevens (5/8/13)
Labour Market Outlook CIPD
Questions
- Distinguish between open unemployment, disguised unemployment and underemployment?
- Distinguish between functional, numerical and financial flexibility? Which type or types of flexibility do zero-hours contracts give the firm?
- Identify the various benefits to employers of zero-hours contracts?
- What are the costs and benefits to workers of such contracts?
- Identify what forms of flexible contracts are used for staff in your university or educational establishment. Do they benefit (a) staff; (b) students?
- Are zero-hours contracts fair?
- In what ways do zero-hours contracts transfer risks from employers to employees?
- If a company introduces a system of zero-hours contracts, is this in accordance with the marginal productivity theory of profit maximisation from employment?
- From the perspective of the employer, how do the benefits of zero-hours contracts compare with other forms of flexible working?
- Consider the arguments for and against (a) banning and (b) regulating zero-hours contracts.
Banks in Cyprus are in crisis. They have many bad debts e.g. to Greece and as mortgages in a falling property market. Private-sector debts have become unsustainable for the banks. The problem is compounded by negative economic growth and large government deficits (see chart). But, as with Icelandic banks back in 2008, this means a crisis for the whole country.
The reason is that the banking sector in Cyprus, as in Iceland and Ireland too, is large relative to the whole economy – over 8 times annual GDP (second only to Ireland in the EU). Loans to Greece alone are as much as 160% of Cyprus’ GDP and Cypriot banks were badly hit by the terms of the Greek bailout, which required creditors to take a 53% reduction (or ‘haircut’) in the value of their loans to Greece. With such a large banking sector, it is impossible for the Cypriot government alone to rescue the banks.
Cyprus thus turned to the EU for a bailout: back in June 2012. This makes Cyprus the fifth country to seek a bailout (after Greece, Ireland, Portugal and Spain). A bailout of €10 billion has just been agreed by the EU and IMF. The bailout comes with the ‘usual’ conditions of strong austerity measures of tax rises and cuts in government expenditure. But what makes this bailout different from those given to the other countries was a proposed levy on savers.
The proposal was that people with up €99,999 in their bank accounts (of any type) would face a one-off tax of 6.75%. The rate for those with €100,000 or more would be 9.9%, including on the first €99,999. This would raise around €5.8 billion of the €10 billion.
Not surprisingly, there was a public outcry in Cyprus. People had thought that their deposits were protected (at least up to €100,000). There was a run on cash machines, which, as a result were set to deliver just small amounts of cash to cope with the excessive demand. There was huge pressure on the Cypriot government not to introduce the measure.
But the ramifications of the proposed levy go well beyond the question of justice to savers. Questions are being raised about its incentive/disincentive effects. If people in other countries in future financial difficulties felt that they might face similar levies, how would they behave? Also, there is no haircut being proposed for holders of banks’ bonds. As Robert Peston states in his first article below:
The Cypriot deal sets back the cause of the new global rules for bringing order to banking systems when crisis hits. Apart from anything else, in other eurozone countries where banks are weak, it licenses runs on those banks, as and when a bailout looms.
But getting incentives right is not easy. As the Buttonwood column in The Economist points out:
The problem is tied up with the issue of moral hazard. This can be applied to both creditors and debtors; the former should be punished for reckless lending and the latter for living beyond their means. The collapse of Lehman Brothers is seen as an example of the faulty reasoning behind moral hazard; by letting the bank go bust, the crisis was spread throughout the financial system. But rescuing every creditor (or intervening to bail out the markets every time they falter) is the reason we are in this mess.
One alternative considered by the Cyprus parliament was to exempt people with less than €20,000 in their accounts from the levy. But this was rejected as being insufficient protection for savers. Another is to exempt people with less than €100,000, or to charge people with between €20,000 and €100,000 at a lower rate or rates.
But charging less, or nothing, on deposits of less than €100,000 would make it harder to to raise the €5.8 billion required by the EU. Without alternative measures it would mean charging a rate higher than 9.9% on larger deposits. The Cypriot government is afraid that this would discourage inward investment. Russia, in particular, has invested heavily in the Cyprus economy and Russia is campaigning vigorously to limit the size of the levy on large deposits. But there is little sympathy for Russian depositors, much of whose deposits are claimed to be ‘laundered money’. The Cypriot government has been seeking financial support from the Russian government.
An alternative proposal being considered is to issue government bonds in an “investment solidarity fund” and to transfer pension funds from semi-public companies to the state. Also Russia may be willing to invest more money in Cyprus’ offshore oil and gas fields.
Agreement
A deal was struck between Cyprus and the EU/IMF early in the morning of 25 March, just hours before the deadline. For details, see the News Item Cyprus: one crisis ends; another begins.
Webcasts and podcasts
Eurozone ministers agree 10bn euro Cyprus bailout Channel 4 News (16/3/13)
Bailout is ‘blackmail’ claims Cyprus president Euronews (17/3/13)
Cyprus’s president tries to calm fears over EU bailout The Guardian (18/3/13)
Cypriot bank customers reactions to savings levy BBC News (17/3/13)
Cyprus bailout: Parliament postpones debate amid anger BBC News (17/3/13)
Cyprus parliament delays debate on EU bailout Al Jazeera (17/3/13)
Cyprus told it can amend bailout, as key vote postponed BBC News, Gavin Hewitt (18/3/13)
Robert Peston: Cyprus bailout an ‘astonishing mess’ BBC News, Robert Peston (18/3/13)
Cyprus bailout is ‘completely unfair’ BBC Radio 4 Today Programme, Michael Fuchs and Bernadette Segol (18/3/13)
Lenders ‘doing everything you should not do’ on Cyprus BBC Radio 4 Today Programme, Alistair Darling (19/3/12)
Cyprus warned over bailout rejection BBC News (20/3/13)
Articles
Cyprus becomes fifth eurozone bailout The News International (Pakistan) (17/3/13)
Cyprus bailout deal sparks run on ATMs Irish Independent (17/3/13)
EU leaders gamble in Cyprus bank bailout BBC News, Gavin Hewitt (17/3/13)
Cyprus told it can amend bailout, as key vote postponed BBC News (18/3/13)
Q&A: Cyprus bailout BBC News (19/3/13)
Cyprus’ President Defends Bailout Deal The Motley Fool (16/3/13)
Sad Cyprus The Economist, Buttonwood’s Notebook (12/3/13)
The Cypriot bail-out: A fifth bitter lemon The Economist (30/6/12)
Analysis: Cyprus bank levy risks dangerous euro zone precedent Reuters, Mike Peacock (17/3/13)
The Cyprus precedent Reuters, Felix Salmon (17/3/13)
The Cyprus Bank Bailout Could Be A Disastrous Precedent: They’re Reneging On Government Deposit Insurance Forbes, Tim Worstall (16/3/13)
Cyprus rescue breaks all the rules BBC News, Robert Peston (18/3/13)
Cyprus and the eurozone’s survival BBC News, Robert Peston (20/3/13)
Eurogroup defends Cyprus bail-out The Telegraph (17/3/13)
Cyprus eurozone bailout prompts anger as savers hand over possible 10% levy The Guardian (16/3/13)
Cyprus’s wealth tax makes perfect sense – its rich won’t escape unscathed The Guardian, Phillip Inman (18/3/13)
The tragedy of Cyprus The Real Economy blog, Edmund Conway (16/3/13)
Damage limitation in Cyprus BBC News, Stephanie Flanders (19/3/13)
The fatal flaw in the eurozone’s not-so-cunning plan for Cyprus The Guardian, Larry Elliott (19/3/13)
Cyprus plans special fund in race to get EU-IMF bailout BBC News, (21/3/13)
Cyprus says ‘significant progress’ in debt crisis talks BBC News (23/3/13)
Background information
The Banking System in Cyprus: Time to Rethink the Business Model? Cyprus Economic Policy Review, Vol. 5, No. 2, pp. 123–130, Constantinos Stephanou (2011)
European sovereign-debt crisis Wikipedia
Questions
- What is the justification given by the Cypriot government and the EU for imposing a levy on bank deposits?
- What alternative measures could have been demanded by the EU? Why weren’t they?
- What is the significance of Russian deposits in Cypriot banks?
- Compare the benefits of the proposed levy rates with the alternative of imposing levies only on deposits over €100,000, but at higher rates (perhaps tiered).
- Explain the moral hazard issues in bailing out the Cypriot banks.
- How serious is the problem that imposing a tax on deposits in Cypriot banks might have adverse affects on the behaviour of depositors in other countries’ banks?
- How might Cypriots behave in future in regards to depositing money in banks? What impact could this have on the economy of Cyprus?
- Explain “the unholy trinity of options facing indebted nations (inflate, stagnate, default)”. Compare the effectiveness of each.
As part of the Basel III round of banking regulations, representatives of the EU Parliament and member governments have agreed with the European Commission that bankers’ bonuses should be capped. The proposal is to cap them at 100% of annual salary, or 200% with the agreement of shareholders. The full Parliament will vote in May and then it will go to officials from the 27 Member States. Under a system of qualified majority voting, it is expected to be accepted, despite UK resistance.
The main arguments in favour of a cap are that it will reduce the focus of bankers on short-term gains and reduce the incentive to take excessive risks. It will also appease the anger of electorates throughout the EU over bankers getting huge bonuses, especially in the light of the recession, caused in major part by the excesses of bankers.
The main argument against is that it will drive talented top bankers to countries outside the EU. This is a particular worry of the UK government, fearful of the effect on the City of London. There is also the criticism that it will simply drive banks into increasing basic salaries of senior executives to compensate for lower bonuses.
But it is not just the EU considering curbing bankers’ pay. The Swiss have just voted in a referendum to give shareholders the right to veto salaries and bonuses of executives of major companies. Many of these companies are banks or other financial sector organisations.
So just what will be the effect on incentives, banks’ performance and the movement of top bankers to countries without such caps? The following videos and articles explore these issues. As you will see, the topic is highly controversial and politically charged.
Meanwhile, HSBC has revealed its 2012 results. It paid out $1.9bn in fines for money laundering and set aside a further $2.3bn for mis-selling financial products in the UK. But its underlying profits were up 18%. Bonuses were up too. The 16 top executives received an average of $4.9m each. The Chief Executive, Stuart Gulliver, received $14.1m in 2012, 33% up on 2011 (see final article below).
Webcasts and podcasts
EU moves to cap bankers bonuses Euronews on Yahoo News (1/3/13)
EU to Curb Bank Bonuses WSJ Live (28/2/13)
Inside Story – Curbing Europe’s bank bonuses AlJazeera on YouTube (1/3/13)
Will EU bonus cap ‘damage economy’? BBC Radio 4 Today Programme (28/2/13)
Swiss back curbs on executive pay in referendum BBC News (3/3/13)
Has the HSBC scandal impacted on business? BBC News, Jeremy Howell (4/3/13)
Articles
Bonuses: the essential guide The Guardian, Simon Bowers, Jill Treanor, Fiona Walsh, Julia Finch, Patrick Collinson and Ian Traynor (28/2/13)
Q&A: EU banker bonus cap plan BBC News (28/2/13)
Outcry, and a Little Cunning, From Euro Bankers The New York Times, Landon Thomas Jr. (28/2/13)
Bank bonuses may shrink – but watch as the salaries rise The Observer, Rob Taylor (3/3/13)
Don’t cap bank bonuses, scrap them The Guardian, Deborah Hargreaves (28/2/13)
Capping banker bonuses simply avoids facing real bank problems The Telegraph, Mats Persson (2/3/13)
Pro bonus The Economist, Schumpeter column (28/2/13)
‘The most deluded measure to come from Europe since fixing the price of groceries in the Roman Empire’: Boris Johnson attacks EU banker bonus cap Independent, Gavin Cordon , Geoff Meade (28/2/13)
EU agrees to cap bankers’ bonuses BBC News (28/2/13)
Viewpoints: EU banker bonus cap BBC News (28/2/13)
Voters crack down on corporate pay packages swissinfo.ch , Urs Geiser (3/3/13)
Swiss voters seen backing executive pay curbs Reuters, Emma Thomasson (3/3/13)
Swiss referendum backs executive pay curbs BBC News (3/3/13)
Voters in Swiss referendum back curbs on executives’ pay and bonuses The Guardian, Kim Willsher and Phillip Inman (3/3/13)
Swiss vote for corporate pay curbs Financial Times, James Shotter and Alex Barker (3/3/13)
HSBC pays $4.2bn for fines and mis-selling in 2012 BBC News (4/3/13)
Questions
- How does competition, or a lack of it, in the banking industry affect senior bankers’ remuneration?
- What incentives are created by the bonus structure as it is now? Do these incentives result in desirable outcomes?
- How would you redesign the bonus system so that the incentives resulted in beneficial outcomes?
- If bonuses are capped as proposed by the EU, how would you assess the balance of advantages and disadvantages? What additional information would you need to know to make such an assessment?
- How has the relationship between banks and central banks over the past few years created a moral hazard? How could such a moral hazard be eliminated?
Pressure has been growing in the UK for people to be paid no less than a living wage. The Living Wage Foundation claims that this should be £8.55 per hour in London and £7.45 in the rest of the UK. The current minimum wage is £6.19.
There has been considerable support for a living wage across the political spectrum. Ed Miliband, the Labour leader, has stated that a Labour government would ensure that government employees were paid at least the living wage and that government contracts would go only to firms paying living wages. Other firms that paid less could be ‘named and shamed’. The living wage has also been supported by Boris Johnson, Conservative Mayor of London. The Prime Minister said that a living wage is ‘an idea whose time has come’, although many Conservatives oppose the idea.
The hourly living wage rate is calculated annually by the Centre for Research in Social Policy and is based on the basic cost of living. The London rate is calculated by the Greater London Authority.
Advocates of people being paid at least the living wage argue that not only would this help to reduce poverty, it would also help to reduce absenteeism and increase productivity by improving motivation and the quality of people’s work.
It would also bring in additional revenue to the government. According to a report by the Institute for Public Policy Research and the Resolution Foundation, if everyone were paid at least a living wage, this would increase the earnings of the low paid by some £6.5bn per year. Of this, some £3.6bn would go to the government in the form of higher income tax and national insurance payments and reduced spending on benefits and tax credits. Of this £6.5bn, an extra £1.3 billion would be paid to public-sector workers, leaving the Treasury with a net gain of £2.3bn.
But what would be the effect on employment? Would some firms be forced to reduce their workforce and by how much? Or would the boost to aggregate demand from extra consumer spending more than offset this and lead to a rise in employment?. The following articles look at the possible effects.
Articles
Living wage for all workers would boost taxes and GDP Independent, Nigel Morris (28/12/12)
Living wage could save £2bn – think tank research BBC News (28/12/12)
‘Living wage’ would save money, says study Financial Times, Helen Warrell (28/12/12)
Why the Resolution Foundation and IPPR can go boil their heads Adam Smith Institute, Tim Worstall (30/12/12)
Living wage for public servants moves a step closer The Observer,
Yvonne Roberts and Toby Helm (15/12/12/)
Living wage: Ed Miliband pledge over government contracts BBC News (5/11/12)
‘London Living Wage’ increased to £8.55 by mayor BBC News (5/11/12)
Q&A: The living wage BBC News (5/11/12)
Scrooges in UK firms must pay a Living Wage This is Money, John Sentamu (23/12/12)
Report
What price a living wage? IPPR and The Resolution Foundation, Matthew Pennycook (May 2012)
Questions
- How would you set about determining what the living wage rate should be?
- Distinguish between absolute and relative poverty. Would people being paid below a living wage be best described as absolute or relative poverty (or both or neither)?
- What do you understand by the term ‘efficiency wage’? How is this concept relevant to the debate about the effects of firms paying a living wage?
- Under what circumstances would raising the statutory minimum wage rate to the living wage rate result in increased unemployment? How is the wage elasticity of demand for labour relevant to your answer and how would this elasticity be affected by all firms having to pay at least the living wage rate?
- What would be the macroeconomic effects of all workers being paid at least the living wage rate? What would determine the magnitude of these effects?
Each year in November, the Living Wage Foundation publishes figures for the hourly living wage that is necessary for people to meet basic bills. The rate for London is calculated by the Greater London Authority and for the rest of the UK by the Centre for Research in Social Policy at Loughborough University.
