The Living Wage would cost 160,000 jobs and other distortions

There’s a fascinating Resolution foundation report on the Living wage out today.  Do have a read.

One thing I wanted to point out, though. Using a NIESR Labour market model, the authors suggest 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″

and

“In the model, demand for young employees (aged 21 or under) with intermediate or no qualifications would fall across all industry sectors by a total of 300,000, with the largest reductions again seen in wholesale, retail, hotels, restaurants and social and personal services.”

I wanted to point this out because reading the report, it occurred to me that this same research could be used to produce some pretty terrifying headlines. “LIVING WAGE WOULD KILL 160,000 JOBS”

Nonsense, of course, because the Living Wage isn’t intended as a legal floor, but a salutary reminder of the power of data and research to serve different ends.

What’s more, because the research suggests that the Treasury would save £2.2 billion a year under such a scheme, given a reasonably creative press officer and a friendly journalist, the Living Wage could even become a plan to balance the books on the backs of 160,000 extra unemployed!

Thankfully, this report doesn’t seek bad headlines. They note, quite rightly that the Living Wage is not proposed as a new minimum wage, and move on to a discussion of sector intervention, and how best to implement a Living wage in a way which is both impactful, fiscally  responsible and has minimal impact on Labour demand.

However, it is a reminder that a Living Wage, useful and important though it is, cannot be relied on to lift living standards wholesale.

You can’t just legislate wages upwards, at least not without considering potentially adverse consequences.  The Living Wage model is easier for certain sectors, and certain types of firms to use, (and is also easier for the public sector to deliver) and therefore harder for others.

That shouldn’t stop us pursuing the Living Wage with passion, but we shouldn’t put all our reliance on it either. The Living wage can’t bear that weight. If we want to lift low-middle incomes, lots of other factors, from workforce skills, to in-work benefits, to childcare support, to a structural environment that encourages company growth to union recruitment growth in the private sector will need to be deployed.

…and all the while, we’ll have to be wary of Right-Wingers twisting the data!

2 Responses to “The Living Wage would cost 160,000 jobs and other distortions”

  1. Metatone

    It’s a good report, but it’s worth questioning the modelling too. Basically it is saying that there are 160,000 jobs out there which are only viable because they pay less than the cost of living.

    But those jobs are part of companies tying up capital and assets in business models which can’t support a living wage. If we are social democrats and believe that market forces have a role, then those companies need to go out of business so that better ones can be created.

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  2. Sam

    The thing about the “living wage” is that it is entirely reasonable to have jobs that pay below it. The idea of the living wage – whether enforced by law or only an aspiration – implies that work that doesn’t have sufficient economic value to cover a person’s living costs should not be done.

    But not everyone needs to earn a living wage. If I’m retired, it is entirely reasonable for me to want a low-impact job to supplement my pension. Not a part-time job, where I work hard for a few hours a week, but a job where I do some not very taxing but vaguely useful task for a small amount of money.

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