Mathew Johnson, Aristea Koukiadaki, and Damian Grimshaw argue that despite the popularity of the living wage, it has not become sufficiently embedded in the UK labour market. This is because employers can choose whether to become accredited or not with the Living Wage Foundation, and there are only weak mechanisms through which to pass on the wage gains to a wider range of workers.

Despite a long history in economic and social thought, the living wage is arguably one of the most potent social movements of recent years. The living wage has delivered significant wage gains for some of those at the bottom of the labour market with few of the predicted adverse effects in terms of jobs and working hours. More than 5,000 employers in the UK have signed up to the Living Wage Foundation accreditation scheme, but there are questions about both the coverage and enforcement of the living wage in the UK.

Given these tensions and ambiguities, we explored the development of the Living Wage campaign since it first emerged in London nearly 20 years ago, and considered ways in which the positive effects could be extended to a wider range of low paid workers. By reviewing published research and secondary data along with our own primary research on the implementation and impact of the living wage, we are able to offer a detailed and nuanced assessment of its successes and limitations in a UK context.

First and foremost, it should be recognised that the living wage is an important response to the persistent challenge of low wages in the UK. The introduction of the UK national minimum wage in 1999 was a watershed moment in regulating the bottom end of the labour market and there is good evidence that it has helped to raise wages without causing job losses or impeding business growth. But the minimum wage is designed only to be a ‘floor’ under wages that prevents extreme exploitation and sweating, and crucially is set at a level that the market can bear rather at a level that protects living standards. This means that despite the general acceptance of the national minimum wage as a broadly positive redistributive policy, in isolation it has not been able to stem the rising tide of in-work poverty.

The living wage in contrast is explicitly calculated to provide workers with a modest but decent standard of living, based on the cost of a typical ‘basket of goods’ such as food, clothing, and transport. The current UK Living Wage is £9.00 per hour and the London Living Wage is £10.55 per hour, compared with the adult national minimum wage of £8.21 per hour. There is good evidence that living wage can reduce the risk of poverty and the positive effect is particularly strong for sole earners and lone parents (who are likely to be dependent on their own earned income). There are also potential wider effects in terms of supporting the consumption power of low earners and reducing the burden on the state to subsidise low paying employers through tax credits.

Crucially, campaigners have found a way to turn these concerns about structural problems of low pay, poverty, and inequality into a ‘winnable issue’ in the form of an independently calculated hourly wage rate. The Living Wage campaign in the UK began when The East London Company and UNISON began campaigning for a living wage some 30% higher than the national minimum wage at that point. Direct action such as disrupting shareholder meetings, combined with the negative publicity of being seen to pay ‘poverty wages’, quickly led to increases at HSBC and Barclays from £5.00 to £6.00 per hour. Shortly afterwards the Greater London Assembly established the Living Wage Unit and adopted relevant clauses in its external contracts for cleaning and catering.

It has been estimated that around 11,000 workers benefited from the London Living Wage between 2005 and 2011, with little or no effects on employment levels or working hours. Across the rest of the UK, since the Living Wage accreditation scheme began in 2011, more than 5,000 businesses of all types and sizes have become official living wage employers and an estimated 120,000 workers have received pay increases of around 10% (over the national minimum wage). Accredited businesses are allowed to display the Living Wage Foundation logo in their premises and on their website, which potentially boosts the ‘ethical’ reputation of the firm and promotes staff recruitment and retention.

However, to put the 120,000 figure into context there are an estimated 5.75 million jobs across the UK that are paid below the living wage. The reason for the low total coverage is that many accredited firms are small and medium enterprises with 50 employees or fewer, and in some cases the lowest paid employees such as cleaners, catering, and security staff are often outsourced. Although accredited living wage employers are expected to work with their suppliers to raise pay for subcontracted staff over time, there are no binding legal obligations on first-tier firms to do this. This raises questions about the enforcement of living wage standards along complex supply chains where systems of oversight and governance are likely to be weak. More broadly, this underlines the limitations of a largely ‘soft’ regulatory approach that relies on moral suasion rather than sanctions or penalties for non-compliance.

Given the near complete absence of collective bargaining in most parts of the UK private sector, there is limited scope for worker representatives such as trade unions to use living wages as a platform for supplementary bargaining in order to restore wage differentials higher up. Although the trade unions have in some cases been hesitant to endorse local living wage deals where they undermine regular negotiations over pay and conditions, there are signs that unions are increasingly adopting the living wage as a core priority, and many large accredited employers already recognise a trade union.

More participative forms of wage setting such as centralised collective bargaining or wages councils that up until the 1990s set minimum rates of pay for un-unionised and ‘sweated’ trades such as textiles and agriculture could be important mechanisms by which to extend the coverage of living wages. This would potentially help to bring in large service sector organisations that could significantly increase the coverage of the living wage, and importantly by coordinating wage increases across employers this could be achieved without sacrificing internal ‘job ladders’ that might ultimately provide a long-term route for low wage workers to upskill and increase their earnings over the long-run.

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Note: the above draws on the authors’ published work in Transfer: European Review of Labour and Research.

About the Authors

Mathew Johnson is Lecturer in Employment Studies at the Manchester Business School, University of Manchester.

Aristea Koukiadaki is Senior Lecturer in the School of Law at the University of Manchester.

Damian Grimshaw is Professor of Employment Studies at the Manchester Business School, University of Manchester.

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay (Public Domain).