Presentation by Jeanette Findlay, University of Glasgow to STUC's Decent Work, Dignified Lives conference on 15 October 2015.

1. Living Wage
How it is calculated and what difference it
makes

2. Decent Work, Dignified Lives
Literature Review:
Joseph Rowntree Minimum Income Standard 2014 (Davis et al): based on
‘what members of the public think people need for an acceptable minimum standard of
living.’
Or
‘It is about having what you need in order to have the opportunities and choices necessary
to participate in society’
Based on focus groups across a range of social classes, ages etc supplemented by
experts (nutritionist, heating engineer)
Differs from the ESRC Necessities Survey which is based on a large scale UK-wide
survey to establish a list of goods and activities (including those specifically for children)
which are considered by more than 50% of the population as necessities.

3. Decent Work, Dignified Lives
Key findings:
– prices don’t always change uniformly eg prices of lower cost food has risen faster than
the average (this has been understood for a long time eg Scottish Low Pay Unit used to
produce a cost of living index based on a basket of goods more closely related to what
people on low incomes actually buy)
– Domestic fuel prices rising faster than average prices
– Transport costs have risen – inadequacy of public transport
– Technology necessary to participate evolving – including pensioners for first time
Compared to 2008, basket of goods (the minimum necessary as viewed by the
public) for a family with children has not changed much but the cost has risen fast
than inflation and also in terms of the earnings required to pay for it

4. Findings in terms of benefits/wages:
Working Age Benefits – falling further behind the MIS
Pensions - closer to MIS but falling
Decent Work, Dignified Lives
Official Poverty Line (HBAI) falling further below MIS – effect of falling incomes: official
poverty estimates are underestimates
HH supported by Minimum Wage – falling further behind – result of wages rising slower than
living costs and, for those with children, cuts in in-work benefits.

5. • “Currently, inflation has eased and earnings are picking up; but fiscal
cuts continue and therefore the ability of low-income households to make
ends meet, especially those out of work and those with children, will not
necessarily improve during an economic recovery.”
• So what people need is largely the same with some adjustment in terms of
technology (keeping cost of technology about the same).
• What it costs them to have it has risen
Decent Work, Dignified Lives

6. April 2014:
Hourly wage rate required to obtain MIS:
HH type Hourly rate
Single working age adult 8.33
I earner couple; 2 children; no
childcare
18.94
2 earner couple; 2 children;
with childcare
10.37
Lone parent with 1 child with
childcare
13.85
Decent Work, Dignified Lives

7. Living Wage v Minimum Wage concepts
Decent Work, Dignified Lives
Minimum wage is highest floor consistent with avoiding
significant job losses
Living Wage is meant to provide workers and their families with
a ‘basic but acceptable’ standard of living
and LW is about raising incomes via work rather than cash
transfers ie benefits

8. Decent Work, Dignified Lives
NMW London LW UK LW
2011 6.08 8.30 7.20
2012 6.19 8.55 7.45
2013 6.31 8.80 7.65

9. Decent Work, Dignified Lives
• The annual increase in the UK LW is capped at 2 percentage
points above the higher of
–the rise in average income
–median earnings
• Also assumes full take up of in-work benefits
• Trade-off means that sometimes LW does not keep up with
living costs but allows employers to plan wage bill over time.
• There are particular issues in terms of collective bargaining
over this and some employers agree to pay it but do not
commit to uprating each year (not accredited)

10. Decent Work, Dignified Lives
• Impact of Living Wage on Employment:
• Resolution Foundation, 2013 ‘Beyond the Bottom Line’
commissioned the NIESR to model the extreme scenario of
what would happen if all private sector employees in the UK
were paid at least the LW.
‘A relatively standard model of labour demand suggests that
moving the hourly pay of every low-paid worker in the UK up
to the living wage would reduce overall labour demand by
around 160,000. Given the scale of the increase in wages at
the bottom end of the labour market, this aggregate effect is
perhaps surprisingly small – it is equivalent to less than four
per cent of the more than four million employees in the
private sector that would benefit from a pay rise.’

11. Decent Work, Dignified Lives
Certain sectors/groups would be worse affected than others:
–Wholesale and Retail
–Hotel and Catering
–Demand for young workers with no qualifications would fall across all sectors
• This is not only an extreme scenario but it is known that the
model used here overestimates labour demand effects.
These models predicted job losses caused by the
introduction of a NMW which did not come to pass.
• There are other bodies of literature which relate to efficiency
wages, incentives and other aspects of wage setting which
predict more positive results.

12. Decent Work, Dignified Lives
The actual evidence on the effect of LW on employment in
London is, on balance, positive.
The evidence in relation to employer costs is more negative.
Landman, 2013, takes a more positive view.
•Job losses are overestimated in the NIESR research
•Most evidence ignores the stimulating effect of LW on
economy (macro effects)
•Overall, predicts no significant job losses