The Blog

A Living Wage Without the Law

For politicians seeking to raise the pay at the bottom, by all means celebrate those firms that embrace a Living Wage, but don't forget to focus on these structural issues.

There is confusion in the debate around the Living Wage. Calculated with reference to the cost of living in the area in question it is an estimate of what hourly pay rate is required to earn a "decent" wage: £7.85 per hour, or £9.15 in London. Notwithstanding the fact that it doesn't take account of household incomes, housing tenure, eligibility for tax credits or number of dependents, it is nevertheless an undisputedly good thing. After all, how could you condone earning less than the amount required to meet basic needs?

But it does not follow that paying the living wage should be a legal requirement. The reason is that the Low Pay Commission believes to do so would threaten jobs. And who are they? Oh, just a massively successful example of corporatist wage bargaining on a national scale consisting of trade union and employer representatives informed by serious economics with cross-party buy-in, whose job it is to set the minimum wage at the highest level possible without threatening employment. And their view is that that level is £6.50.

That's not to say that more employers shouldn't pay the living wage. In fact all employers who can afford to do so, should do so, and campaigns like the recent Living Wage week are important to turn the moral screws on those who aren't.

But for those who can't, another approach is necessary. A research report that my company Tooley Street Research undertook for John Lewis Partnership and the CiPD used data analysis and focus groups to explore the characteristics, attitudes and barriers to promotion for people who had been stuck on pay below the living wage for years. The conclusions are stark. If you start on minimum wage, the likelihood of being 'stuck' is strongly correlated with being female and increases with age, with outcomes worse outside London.

Amongst women, having children is not in itself associated with a higher chance of being stuck but being a lone parent or having young children does, as does having a work-limiting health condition for both genders. Working part-time, in a small workplace, or in a low-wage industry are strongly associated with being stuck in low pay once the person has had this status for more than one year. Having higher qualifications, working in the public sector or in a workplace with annual pay increments are negatively associated with being stuck.

Many people lacked the knowledge of how to increase their pay and felt there was little reliable support at work in this regard. The least difficult way to take home more money is not to get promoted but to do more jobs, but this is denied those with young families. People often felt that seeking promotion was not worth the hassle as it would jeopardise other aspects of their lives; in particular those working part time were nervous of doing anything that would put that status at risk.

So for politicians seeking to raise the pay at the bottom, by all means celebrate those firms that embrace a Living Wage, but don't forget to focus on these structural issues. Part-time career paths in low-pay sectors is an obvious first move - something that skills councils and industry bodies would be well placed to achieve. More hours of pre-school free childcare could help - using the tax credit system to reimburse people instead didn't seem to be sending a sufficiently strong signal to change parents' attitudes and behaviour. And for employers, communication is key - how many line managers actually know which of their teams want to progress and have a plan in place to make that work for the business, if necessary on a part-time basis?

There are also implications in the quasi-public sector: how much does the quality of, for example the care service, actually matter to the public purse and if so how can career paths be structured to obtain it? If we spent more time working out how to crack these knotty problems, there'd be less need for the Living Wage campaigns.