The UK introduced the minimum wage in 1999 when the hourly rate for workers over 21 was £3.60, it now stands at £6.50. For those working a 37 hour week, this equates to a gross annual salary of £12,506, not exactly a fortune. It’s an amount that would see a single parent caring for one child receive over £2,700 in tax credits per year. Even minimum wage workers without children are entitled to a salary boost from tax credits if they are over 25.
According to The Living Wage Foundation, the living wage, which is considered to be the minimum wage workers need to earn to afford a decent standard of living, is currently £7.65 per hour outside of London. This equates to an annual salary of £14,718, over £2,000 a year more than a full time minimum wage salary. Not only that, but earning a living wage would also reduce that same single parents tax credit entitlement and therefore cost to the welfare bill by nearly £500 a year.
The fact is, that although poor pay is often thought of as being a social issue, there’s a real economic argument for increasing the minimum wage to the living wage. Politicians and the Chancellor tell us constantly we need to reduce the deficit and cut the welfare bill. Moving from the minimum wage to the living wage would not only increase the salaries of the poorest workers but also reduce the burden on the welfare state. So why is there such a reluctance to move to the living wage?
Inflation
Firstly, it’s argued, wage increases cause inflation which is bad for the economy. The fact of the matter is that wages alone simply can’t cause inflation. The cost of the goods and services that inflation is measured on will rise and fall for a multitude of reasons. Yes, wages are one of them but so are corporate taxes, VAT, energy costs, costs of raw materials, changes in employment law and many others.
In fact, since it’s introduction, the minimum wage has risen fairly steadily, whereas inflation has actually risen and fallen more in line with the state of global economy than anything else.
Secondly it’s feared if a company staff bill becomes too high because of enforced wage increases, employers will look to reduce it by reducing their workforce which increases unemployment and numbers claiming benefit. However, employers moving to the living wage generally find their staff turnover decreases and as a concequence so do the costs of hiring and training replacement workers. In fact, evidence from both the UK and the US suggests that increases in the minimum wage don’t actually cause increases in unemployment. Not only that but, since the introduction of the minimum wage, unemployment, like inflation, has risen and fallen wildly with no apparent correlation to minimum wages increases.
Mst people in poverty have jobs
Thirdly, it is argued minimum wages increases don’t help the most impoverished in society such as those on state pensions or the unemployed. But actually, the majority of people classed as being in poverty have jobs. In fact a fifth of UK workers earn less than is needed to sustain a decent standard of living and rely on in work benefits for this. Moving to the living wage would not only reduce the level of dependency on benefits, but would also result in there being more money in the welfare pot to help the unemployed and pensioners.
The arguments not to increase the minimum wage to the living wage simply do not stand up to scrutiny, but there’s a bigger issue here. The companies not paying the living wage are the likes of Sainsburys, Next and B&Q, who, like many many other big retail giants, all currently enjoy healthy profits. By not paying staff a living wage these corporate giants keep wage bills down and profits up. But while they bathe in the glory of headline grabbing profits and contented shareholders, their lowest paid workers need to supplement their income by taking in work benefits. The net effect is that their high profits are essentially partly subsidised by the welfare state and the taxpayer, i.e. you and me, and I don’t know about you, but personally I feel these corporate giants get enough of my money as it is.
