LIVING WAGE IN UK

Assess the case for and against the setting and enforcement of a living wage in the United Kingdom

Assess the case for and against the setting and enforcement of a living wage in the United Kingdom

Introduction

A living wage is an hourly wage rate considered the minimum level to provide the basic essentials of modern living. A living wage takes into account average expenses a household is likely to face. Therefore, in a city like London, the living wage is likely to be higher than the north (Sloman & Wride, 2012, pp 39-43). This is because in London living costs tend to be higher due to higher rents and transport costs. The idea of a living wage, to lift low-paid workers out of poverty, seems to be gaining ground.

It is not a brand new concept though. It has been around in its present form since 2005, when it was adopted by the Greater London Authority (GLA) for its own staff in London Centre for Economic Performance and London School of Economics overview (Centre for Economic Performance and London School of Economics, 2013). The idea of the living wage has been promoted by both London mayors since then, Ken Livingstone and Boris Johnson. It has also been adopted by some other employers, around the UK as well as in London, as a benchmark for their lowest levels of pay(Sloman, 2012, pp 45-51).

Should Living Wage Rate be Compulsory?

Enforcing the living wage rate, would effectively be increasing the minimum wage rate from £6.08 to £8.30. This would have a profound effect on both income of low paid workers (New Economy, 2009, p 1). It would also significantly increase the costs for business, potentially leading to unemployment.

Arguments For Enforcing a Living Wage

Helps to reduce inequality in society

Firms can afford higher wage rates for lowest paid workers by reducing wage rates of top paid workers.

Higher pay can help to increase labour productivity, motivation and reduce labour turnover rates. Guy Stallard, head of Management at KPMG Europe,(who voluntarily use living wage rate) said: “We have found that paying the living wage has benefits on both sides, as increasing wages has reduced staff turnover and absenteeism, whilst productivity and professionalism has subsequently increased.” (Sloman, 2012, pp 45-51)

Firms have a degree of monopsony power in employing workers. This enables them to pay wages lower than marginal revenue product

Arguments Against Enforcing a Living Wage

Minimum wage rate is already quite high £6.08. There is a danger setting a minimum wage rate significantly higher could cause unemployment. Although some firms like KPMG and Tesco might be able to afford higher wages, other firms like hairdressers, and cafes may find a 20% increase in wages could be difference between survival and bankruptcy in current recession. A minimum wage is a legal minimum for workers (Sloman & Wride, 2012, pp 39-43). It means workers are guaranteed a certain hourly pay helping to reduce relative poverty. However, a minimum wage could have potential disadvantages. If labour markets are competitive a minimum wage could cause ...