The National Living Wage: a viable way to reduce Britain’s crippling inequality?

On Friday 6th November, it was revealed that fifteen companies out of a total of twenty-one that sit on the CBI’s presidential committee, including British Airways and BP, do not pay all of their employees the national living wage. These findings were the result of research conducted by the Living Wage Foundation, which itself defines the national living wage as £8.25 an hour, although it is set to be introduced by the government in April 2016 at a lower rate of £7.20. With many of Britain’s top businesses not paying the living wage and it set to reach £9 an hour by 2020, it is questionable whether the living wage is a viable policy and, in particular, whether it would be successful in cutting the highly unequal distribution of income within the country.

Many critics of the government’s plans for a national living wage say it will risk creating unemployment or, at least, aggravating the already high level of underemployment within the economy. Why? In no small measure, it is contended that higher wage costs will price labour out of the market as companies’ wage bills become unaffordable. If this is the case, the national living wage may be both unsustainable for companies and inequitable for those who earn already low incomes. Sam Bowman, the deputy director of the free-market zealots of the Adam Smith Institute, put this rather pessimistic view concisely this last summer, claiming the national living wage will be ‘a disaster that will condemn tens of thousands of people to long-term unemployment’.

However, there is much to warrant optimism about the national living wage. For one, many companies at present pay the national living wage, from British Gas to Barclays, ITV to Chelsea FC and even smaller institutions like the National Portrait Gallery, even before the legislation has been implemented. Moreover, it is debatable how elastic, to use a technical term, the demand for some low-paid workers are. True, arguably many of those who would be earning the national living wage are unskilled and untrained and thereby may appear to be easily dispensed with if their employer deemed them unneeded or unaffordable. Yet, it is these same workers who carry out jobs that are often necessary, albeit unpleasant, and because of this their employers will be reluctant to cut their work. Can one expect, for example, CEOs and QCs happily cleaning their offices at the end of the day, sorting the recyclables from the food waste, when the government’s national living wage of £7.20 an hour is only a marginal increase from the current national minimum wage of £6.70? How willing would many companies be to discard workers who often undertake essential tasks like cleaning, for the sake of not paying an extra fifty pence per hour per worker? Even outside the country’s head offices and inside its restaurants, shops and cafés, it may be asked to what extent, if any, companies would be willing to endanger the quality of the services they offer to their customers when the national living wage is introduced.

Furthermore, it must be remembered that these proposals come at a time when inflation in the UK is near negligible and is at a real risk of turning negative. Surely, in the context of relatively stable expenditure in terms of their energy, fuel and raw material costs, companies can afford to pay their unskilled, relatively untrained workers a slightly higher hourly wage. For the reasons outlined above therefore, it seems the national living wage is at least a viable policy.

Whilst the national living wage is viable, it is as well deeply advantageous for both Britain’s economy and society. For one, it would increase the level of household incomes, especially for households that, as they are the ones with the lowest income, are likely to spend proportionately more of their incomes than the richest households. Theoretically, at the very least, a national living wage would therefore boost the economy by raising the level of aggregate demand. Equally, a national living wage, as in general applies for a better-paid workforce, may help to alleviate the UK’s sluggish productivity and, related to that, its severe lack of competitiveness and trade deficit. This is because a better-paid workforce is often a happier one and one that works harder, something which improve both the quantity and quality of businesses’ products and in turn will help their commercial performance at home and abroad. Besides this, there is a myriad of convincing arguments that reducing economic inequality in the UK from its current high levels, of which the national living wage could assist in, would be beneficial to its wider economic health: from improvements in educational performance and social mobility to reducing public expenditure on health problems, such as obesity and diabetes as well as depression and anxiety. Small wonder therefore that inequality has become an issue of increasing importance of the last few years, with the economists Joseph Stiglitz and Thomas Piketty writing extensively on the matter.

Returning then to whether the living wage would in some way cause a kind of corporate apocalypse, with profits collapsing and mass unemployment, the answer is clearly that it would not. Not only is it viable, with it unlikely to cause job losses, it will have wider economic and social advantages, of which just a fraction have been mentioned above. A more pertinent question, however, remains over whether the new national living wage will make much impact upon the level of economic inequality at a time when the new Tory government is ushering in a new round of fiscal austerity. With the ongoing row over tax credits and the possibility of three million households losing on average one thousand pounds annually maybe it is not the living wage, but this that will typify the government’s approach for the next five years.

Nicholas Naylor, 2nd Year History

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