Can employers afford not to pay a Living Wage?

Two weeks ago, cleaners for government departments left letters on Minister’s desks asking to be paid the London Living Wage. The man who cleans Nick Clegg’s office was involved as was the lady who cleans George Osborne’s office. A Cabinet Office spokesman responded to the press coverage by stating that the government ‘are not convinced employers should be required to pay a higher living wage’

The release of the official HBAI stats recently showed yet another increase in working poverty (Chris Goulden from JRF called it ‘a relentless rise’ whilst the Director of the CSJ admitted they had ‘missed in-work poverty’) and this post will explore the idea that, contrary to being unable to afford to implement a Living Wage policy in the current climate, employers may consider that they can’t afford not to.

All in this together

The Coalition government has made great play of a private sector led recovery from the economic crisis but, for many people, businesses (especially large, multi-national ones) are still part of the problem. Recent concerns over private sector organisations such as G4S, A4E, Barclays (a Living Wage employer it should be noted) and Southern Cross suggest that ‘the market’ is often not best placed to deliver the kind of society many people would like. Polly Toynbee suggested that outsourcing of public services contracts ‘create moral hazard on a grand scale, where profits are private but losses are ours’.

Michael Bloomberg, Mayor of New York, owner of 11 homes and the 20th richest man in the world recently vetoed the Living Wage in New York whilst Lord Griffiths, the Vice Chairman of Goldman Sachs famously suggested that ‘we have to accept that inequality is a way of achieving greater opportunity and prosperity’. So employers potentially have a choice to make. Do they risk aligning themselves with ‘the orthodox market approach: that workers should be paid what the market deems they are worth’, and where ‘the interests of workers are relegated compared to the needs of capital’, or should the wage level ‘be based on what people need to live on and not what business can afford’? (Grover 2005, p13).

Many employers are already demonstrating that paying a Living Wage does not necessarily mean higher costs or reduced profits and can be entirely compatible with an effective business model. Guy Stallard from KPMG, says that paying a Living Wage ‘isn’t just about altruism … a really motivated workforce is in many ways even more important when businesses are facing really challenging times’ and ‘It is possible to behave ethically, and pay the Living Wage, while working to earn a profit.’ UNISON have also produced a summary of responses from Living Wage employers which highlight the ‘business case for the Living Wage’, something we are working on in the North East. Employers report higher retention rates, reduced absenteeism and a more motivated workforce.

A report by GLA Economic in 2009 on the ‘business benefits of implementing a Living Wage policy in London’ concluded that:

Our findings indicate that there is some evidence of significant financial and nonfinancial benefits achieved by those employers that have implemented the London Living Wage. Although some organisations indicated that there were non-trivial implementation costs, the absence of any evidence of substantial negative impacts on business performance on an on-going basis suggests that there is a likely positive net benefit of London Living Wage implementation for a typical firm. (my emphases)


IPPR and the Resolution Foundation recently launched a report asking ‘What price a Living Wage?‘ exploring the impact of a living wage on firm level wage bills across 7 industrial sub-sectors. They calculated that the highest average wage bill increase would be in ‘bars & restaurants’ which would see an increase of around 6.2% whilst other sectors such as banking and construction would see an increase of around 0.1 – 0.2%. The report did not take account of any wage ‘spillover’ effects and nor did it analyse how employers might ‘bear the cost’ of implementing a Living Wage.

However, there is no reason why implementing a Living Wage should cost anything. As Hilary Metcalf pointed out at a meeting I attended recently, many other countries seem to do just fine by paying their lowest paid workers a little bit more and their highest paid workers a little bit less. The 28th British Social Attitudes Survey highlighted that a large majority of people (74%) thought that the gaps between those with high incomes and those with low incomes was too large and a smaller majority (55%) thought that ‘ordinary working people do not get their fair share of the nation’s wealth’. However, a minority (34%) felt that government should redistribute income from the better off to those who are less well off, which suggests that employer efforts at ‘pre-distribution’ would be well received by the public.

The London Borough of Islington have stated that they are able to implement the Living Wage without it increasing costs substantially and they have done this ‘by in-sourcing services and trimming the pay of the Chief Executive‘. Newcastle City Council have announced that they will be Living Wage employers and there are many other examples across the country. In Scotland, over 50% of local authorities have committed to paying the Living Wage, so it can be done by the public sector, even in times of austerity.

In the words of Thorstein Veblen “Ideally, and in the popular apprehension, the university is, as it has always been, a corporation for the cultivation and care of the community’s highest aspirations and ideals” and a number of universities, particularly in London, have committed to paying a Living Wage. Labour Students have highlighted the Living Wage as a major campaign for them nationally and a recent motion passed by DSU requires ‘the student’s union to campaign for the (Durham) University to pay all staff a Living Wage’.

Reputational benefits and risks……

The reputational benefits of being a Living Wage employer provide some of the strongest reasons why employers may choose to implement a Living Wage. Being seen as a ‘good’ employer will be important not only to potential employees but also to potential consumers in an era where ‘fairness’ is a concept that many people identify with. Sainsbury’s, generally seen as one of the more ethically minded supermarkets (it’s the world’s largest fairtrade retailer) have recently been targeted by the direct action Pay Up campaign as a result of them not paying their staff a Living Wage.

A note of caution…

Of course, the Living Wage is not a silver bullet for working poverty and I’ll post another blog looking at some of the assumptions and problems with it in the next couple of weeks. You can also pay staff a Living Wage and still be a pretty poor employer as well. However, as a symbolic gesture that you are serious about tackling in-work poverty amongst your workforce, I’d argue that it takes some beating. And it needn’t be ‘bad for business’ either.



If you are an employer who is interested in becoming an accredited Living Wage employer, you can find out more about how to do this by contacting the Living Wage Foundation here


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