DEBATE: Should companies have to adopt a real Living Wage?

Gail Irvine and Len Shackleton

June 11, 2022

Gail Irvine, Living Wage Scotland Manager at the Poverty Alliance, argues YES

With the cost of living skyrocketing, of course companies who can should adopt the real Living Wage. The statutory minimum wage has been a highly successful policy in lifting workers out of extreme low pay, with no detriment to employment. But there are limits to what the minimum wage can do, as its rate calculation is not based on the cost of living. Unlike the real Living Wage, whose rate is adjusted annually drawing on the real costs of rent, bills, food and other essentials.

The Living Wage has always been a voluntary initiative: employers choose to pay the Living Wage. Not only because it is the right thing to do to help workers meet the cost of living and to reward a hard day’s work with a fair day’s pay. But also because employers see immediate business benefits, in terms of their ability to attract, retain and motivate good performance from their people.

Paying the Living Wage is a crucial differentiator for companies in a tight labour market. And with consumer spending already stagnating due to price inflation, people earning the Living Wage have that little bit leftover to put back into their local economy, which helps businesses keep their doors open.

This is an uncertain time for businesses too, of course, who face rising costs of doing business. But with over 10,000 Living Wage employers in the UK, there is a wealth of guidance available to support employers of any size and any industry to find a sustainable path to introduce the Living Wage into their business model. Now is the time to go beyond the minimum and embrace a real living wage.

Len Shackleton, professor of economics and research fellow at the IEA, argues NO

We have a well-established and well-thought-of Low Pay Commission, which attempts to set the National Living Wage and other National Minimum Wage rates in a non-political manner which balances raising pay with protecting jobs. Labour Market conditions are analysed carefully before making proposals to the government.

The ‘Real’ Living Wage is the product of the Living Wage Campaign, a pressure group. Its proposed rate is set on the basis of focus group opinion on what is an acceptable living standard, plus analysis of the budgets of households on low income. Unlike the Low Pay Commission, the Living Wage Campaign pays no attention to employers’ ability to pay. It is intended to cover all workers, however young; the government’s minimum wages vary with age. It is designed to be voluntary, with businesses signing up when they are able and willing, not as an arbitrary rule.

It would be unwise to ignore the Low Pay Commission and simply impose the Living Wage Campaign’s figure, devised for a different purpose. It could well price some groups, particularly young workers, out of jobs.

In any case, the whole idea of a Living Wage is rather oversimplified. Both the National Living Wage and the ‘Real’ Living Wage are hourly rates. The majority of beneficiaries of these rates are part-time workers, who could not ‘live’ on these wages if they only work a few hours. Many are in reality students or semi-retired people and a significant proportion come from households which are well above the poverty line as they have other income sources.

Minimum wage rates, at whatever level they are set, are not well-targeted at poor households. Better to use the benefit system, possibly by an increase in Universal Credit, to tackle poverty rather than impose an artificial wage rate which is likely to reduce job opportunities while benefiting people who are not in real poverty.


Written by Gail Irvine and Len Shackleton

Gail Irvine is Living Wage Scotland Manager at the Poverty Alliance and Len Shackleton is a professor of economics and research fellow at the Institute of Economic Affairs.

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