Why employers and governments alike have a responsibility towards introducing a living wage

Following on from my piece about a global wealth tax cutting the gulf between the rich and the poor, another solution towards ending poverty and fairly distributing wealth would be the implementation of a living wage.

Why employers and governments

Whilst the minimum wage has been a great success in combating in-work poverty, it has been increasingly shown to be insufficient in meeting the demands of rising living costs in Europe and the US.

In America, low-wage workers cannot afford decent housing, nutritional intake, healthcare or basic necessities. Many must work two, or even three, jobs and often more than 70 hours a week in order to make ends meet. This is simply unacceptable for a country with the largest GDP in the world.

In the UK, 4.8 million people, 20% of the working population, earn less than a living wage. This puts pressure on the treasury with the taxpayer subsidising low wages to the tune of £3.6 billion a year.

Unions have little bargaining power when pitted against large corporations and this is where governments have a responsibility to impose legislation that forces a wage floor salary.

The benefits of the living wage

  • It’s good for business – an independent study conducted in London showed that more than 80 percent of employers believe the living wage had enhanced the quality of the work undertaken by their staff. The study also revealed that absenteeism had fallen by a quarter.
  • It’s good for reputation – ethically conscious employers believe that paying their staff a living wage increases their brand reputation.
  • It’s good for families – the living wage protects those on the lowest rung of the socio-economic ladder and provides them with the opportunity to provide for themselves and their families.

On top of the above, there is another benefit that requires a bit more explanation, that of the living wage boosting economic growth whilst relieving the burden placed upon the government’s welfare budget.

Last year, Seattle city council unanimously voted to impose the highest minimum wage in the US at $15 an hour, more than double the federal minimum of $7.25 an hour. This landmark decision was hailed as a historic victory for the widening movement of lifting low-paid workers out of poverty but was also seen as a controversial and radical move that carried significant risks.

A study for the Puget Sound Sage, a coalition of labour, civic and religious organisations in Seattle, said the increased minimum wage would inject more than $500m into low-wage households. With disposable income at their fingertips, living wage workers would circle that money back into the local economy rather than have it siphoned off into the pockets of distant wealthy shareholders.

Research by the University of Illinois and UC Berkeley shows that US taxpayers supplement around $243 billion each year in indirect subsidies to the fast food industry alone because their wages are so low that workers often turn to the government for benefit top-ups. Paying a living wage not only removes this welfare dependency deficit but it also removes the costly administrative expense in allocating these benefits payments.

If corporations shift income from the owners to the workers and this increases an overall higher level of spending, then the economy receives a boost, there is greater consumption, a higher demand for goods leading to a generation of increased employment.

The Congressional Budget Office (CBO) reported in February 2014 that raising the federal minimum wage in America from $7.25 to $10.10 and indexing it to inflation would result in a net $2 billion increase in income.

One of the other concerns raised by the introduction of a living wage was the loss of jobs as employers were forced to streamline their workforce due to the overhead of increased salary payments. This myth has been thoroughly debunked by several leading economists including seven Nobel Laureates in Economics.

A landmark study conducted by David Card and Alan Krueger compared the effect of employment in 410 restaurants in the US following an increase in the minimum wage and found no indication that it reduced employment.

The minimum wage has been increased a total of 23 times in America and studies have perpetually failed to yield any evidence of job losses. In 2013, the Center for Economic and Policy Research (CEPR) conducted a review of multiple studies carried out since 2000 indicating that there was “little or no employment response to modest increases in the minimum wage.”

Another study by CEPR conducted in 2014 actually showed that job creation amongst states that had raised their minimum wage above the federal minimum was faster, supporting the idea that disposable income amongst those on the lowest salary scales gives lifeblood to stagnating local economies.

In 2014, over 600 economists signed a letter in support of a proposed $10.10 minimum wage increase in America citing economic stimulation and job creation as decisive factors.

If a living wage means a stronger economy, reduced taxpayer expenditure, more job creation and a decent standard of living for those currently in poverty, introducing one appears to be a no-brainer.

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