Work is seen as a route out of poverty, a way for an individual to support themselves and their family, but there are instances where this is not the case. Globally, labour’s share of GDP has been falling, and in-work poverty is of growing concern to many. Across the world, workers are earning wages below the level required to attain an acceptable standard of living for themselves and their families. This is true in both developing and industrialised economies. This is despite many countries having legal minimum wages, as these are often very low. It is estimated that 5.6 million people in the UK (22% of employees) are being paid less than the living wage and 250,000 are paid below the minimum wage (see glossary for definition of terms).
In recent years, a movement has been growing to urge employers to pay over and above minimum wages - the ‘living wage’ - to all their employees, regardless of employment type, and across their supply chains. These living wages differ across country and region, but there are several organisations, such as the Living Wage Foundation, the Asia Floor Wage Alliance, and various unions, that calculate what they consider to be the living wage in various countries. These differ to statutory minimum wages as they take into account the cost of living, whereas minimum wages are often based on what the market is estimated to be able to bear, or to attract foreign investors.
There are of course costs to businesses increasing wages to the lowest paid, and some have argued that higher minimum wages, or living wages, would have a negative effect on employment. However, research into these effects has often been shown to be either small or negligible across an economy. The cost of increasing the wage bill will differ between companies and industries, but is not insurmountable. Labour behind the Label estimates that 0.6% of the cost of a garment is spent on the wages of workers and IPPR estimates that in the UK, introducing the UK voluntary Living Wage would alter the wage bill by less than 1% for large firms.
The costs to businesses, however, are not straightforward. The experiences of organisations that have introduced living wages shows that there are several benefits and potential cost savings. These include:
- Reduced turnover
- Increased employee loyalty and motivation
- Higher productivity
- Higher staff morale
- Improved employer/employee relationships
- Lower instances of absenteeism (estimated to cost UK businesses £29 billion/year)
- Better customer service
- Attracting and retaining talent.
In some instances, these benefits amount to cost savings that cancel out the increases to the wage bill.
The knock-on effects of introducing higher wages benefit the economy and society. Often those in low paid work are vulnerable or marginalised groups, such as women, young people, and ethnic minorities, so increasing their wages contributes to reducing economic inequality. A link has also been found between the living wage and improved psychological well being. One way businesses can absorb the cost of higher low wages is through wage compression, which also assists in curbing intra-company inequality. Higher wages also boost the economy by increasing the spending power of low-income groups. This also leads to higher tax income for governments and reduced reliance on state support.
A living wage means more than just the hourly rate of pay - it includes not losing out on income for taking time off for ill health, caring duties or similar. While employment laws differ from country to country, minimum wage laws at times fail to cover all workers. Yet businesses are able to go beyond minimum legal requirements. For instance, UK employment law allows for businesses to avoid extending rights such as holiday pay, sick pay and paid paternity leave to certain groups of workers, such as those who do not meet qualifying number of hours worked or who are classified as self-employed, contract workers, or interns. Currently, there is a significant pay penalty for those on zero-hours contracts, agency workers, casual and seasonal workers and self-employed individuals, and many of these workers do not qualify for statutory sick pay, full maternity pay or paternity pay, and automatic enrolment in pension schemes.