Why not pay the living wage? The cost to employers could be minimal

Critics of the living wage must stop exaggerating, as research shows the cost to employers could be minimal.

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Larissa Hansford is a campaigns assistant for One Society

Critics of the living wage must stop exaggerating, as research shows the cost to employers could be minimal.

Living-wageTo mark tax freedom day on Tuesday, the Adam Smith Institute called for “lower taxes… to ease the tax burden on London’s low and middle-income workers…” instead of mandating a “job-killing living wage”.

At first glance, it may seem intuitive to reduce poverty and stimulate demand by cutting taxes rather than pushing up wages. It would probably be simpler but there are many reasons why it would not be effective.

Prime amongst them is that low pay is effectively taxpayer subsidised. The Institute for Fiscal Studies estimates that sub-living wage pay costs taxpayers £6 billion a year (due to the costs of in-work benefits etc). But this is only a fraction of the real cost.

Once the indirect impacts of poverty and inequality are factored in, the figures are staggering. These include the Joseph Rowntree Foundation’s estimate that child poverty costs the taxpayer £25 billion each year, despite the fact that 57% of children in poverty have at least one working parent.

As for the cost to businesses, recent research by the IPPR and Resolution Foundation suggests that in many sectors it would be minimal. For banking, construction and computing companies, paying staff a living wage would add roughly 1% to the total wage bill (even the notoriously low-paying retail sector would only see a 5% rise).

 


See also:

Hotel group leads the way in granting London living wage to hospitality staff 23 May 2012

Will consumers support Living Wage products and services? 10 May 2012

To end inequality without redistribution of wealth, we should pay a living wage 8 Dec 2011


 

Some employers, such as the London Borough of Islington, have implemented a living wage without increasing their costs.

In addition, the introduction of a living wage has tended to improve productivity in businesses by reducing absenteeism and improving motivation.

Those who think that decent pay is bad for business tend to forget that business suffers from the reduction in consumption brought on by stagnating wages. As Chris Huhne pointed out yesterday:

“When I talk to businesses at the moment, the overwhelming issue that they have is that there aren’t enough customers spending enough money to get the economy going.”

In the decade before the recession, consumer spending made up 63-64% of GDP in the UK so a boost to disposable income is essential if we are to find our way out of recession. This is particularly important in low income households which consume a greater proportion of their income than wealthier ones.

There are always siren voices warning that any increase in pay will lead to job losses. Those voices were raised when the national minimum wage was introduced (and subsequently increased) but these concerns have proved to be unfounded. The Low Pay Commission concludes:

“Despite the deepest recession since the 1930s, aggregate employment (whether measured by the number of jobs or the number of workers) and total hours worked have grown since the introduction of the minimum wage in April 1999.”

If we are to move away from poverty pay and reduce the cost of its consequences to the taxpayer, the only sustainable answer is raising wages.

As Adam Smith himself pointed out:

“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

 


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41 Responses to “Why not pay the living wage? The cost to employers could be minimal”

  1. Lord Blagger

    Why not stop taxing people in minimum wage?

    Ah yes, government is desperate for cash because of its debts.

    Stop trying to blame others for the mess of your making.

  2. Make Liberalism History

    Yep, not taxing folk on minimum wage would be a start. How about also: pay a living wage so other pressed taxpayers stop having to subidise low paying employers?

    On top of that, start collecting taxes properly so workers don’t continue to subsidise those who don’t pay the share they’re meant to.

  3. Anonymous

    Because giving you an excuse to make them non-citizens for non-payment of tax isn’t a smart idea.

    And that’s right, double-dip denier, keep saying it’s not your fault!

  4. NeilCB1

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal http://t.co/Nda7So6p

  5. Michael Smith

    "Critics of the living wage must stop exaggerating, as research shows the cost to employers could be minimal." http://t.co/vEg0wSbi

  6. Gavin Talbot

    A #LivingWage can be good for business, taxpayers & jobs, writes @LarissaHansford: http://t.co/xfA1kdE7 via @leftfootfwd

  7. Labour Penrith

    57% of children in poverty have at least one working parent. http://t.co/08jh6aXC #livingwage

  8. Anonymous

    Not enough, still. The problem is that wages have been squeezed out by capital over the last four decades. We’re taxing a pool which isn’t growing that quickly compared to the overall increase in income. We need to look again at capital and how it should be taxed, either a wealth tax or other arrangement.

    No argument that corporate tax evasion and the Government’s enabling of tax havens is a major issue there as well though…

  9. Rep in the Regions

    A #LivingWage can be good for business, taxpayers & jobs, writes @LarissaHansford: http://t.co/xfA1kdE7 via @leftfootfwd

  10. Cath Davis

    57% of children in poverty have at least one working parent. http://t.co/08jh6aXC #livingwage

  11. geordietoff

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal http://t.co/FZou34ku

  12. BevR

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal http://t.co/iVQx4Qoy

  13. Harper Slave

    Why not pay the living wage? The cost to employers could be minimal | Left Foot Forward – http://t.co/FlfqrcGM

  14. Foxy52

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal http://t.co/iVQx4Qoy

  15. Tye

    Why not pay the living wage? The cost to employers could be minimal, writes @LarissaHansford: http://t.co/7H25YjjT

  16. JC

    Can you expand on the ” non-citizens for non-payment of tax” comment please? Do you mean that people who don’t pay income tax are not citizens (people staying at home to look after the kids while partner works?), or that everyone over a certain age should pay income tax.

    As most people here will know, I’m with the idea of removing NI and income tax on those earning NMW. Last week – earned £295, Tax/NI £45. That’s a lot for someone on minimum wage – nearly 1 day working just to pay taxes.

  17. BevR

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal http://t.co/iVQx4Qoy

  18. Peter Krakowiak

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal http://t.co/lEP6MKzM

  19. Enfield Green Party

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal http://t.co/lEP6MKzM

  20. Bill Linton

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal http://t.co/lEP6MKzM

  21. Blarg1987

    I agree with you fully however somepne else would have to pay the cost be it richer tax payers or employers, now employers believe they pay enough tax as it is etc, and to pay a living wage would they would say they can not afford etc, when the opposite is true.

    Partially there should be a naeming and shaming of companies who are unwilling to pay a living wage, yet easily have to profits to do such a thing withiut it affecting overall company performance i.e. 10% of orofits after tax or less would be required to pay a living wage.

    Through a combination of this and public pressure a living wage for all workers could bee achievable.

  22. Anonymous

    The problem is they’re then “scroungers”, and they’re immediately an easy target for the right to dump on in all sorts of ways, arguing to withdraw services, rights and so on becomes FAR easier for them.

    Tax credits usually offset than for people working a full time job, too.

    While in theory it’s a good idea, I can’t support it simply because the Government will NOT do it without adding to the poverty premium when they do so, or as part of measures which hammer the tax base far more broadly.

    (I don’t trust them)

  23. Anonymous

    1. Stop importing cheap labour. Increasing the supply drives down the price (wages).

    2. Stop running up debts. Government then extorts cash from the poor, the middle class and the rich to pay for its errors.

    Average government debt per taxpayer (that includes the min waged), 230,000 quid when you include the off the book debts.

  24. Tim Worstall

    “Yep, not taxing folk on minimum wage would be a start. How about also: pay a living wage so other pressed taxpayers stop having to subidise low paying employers? ”

    Because the current minimum wage, if no income tax and NI was paid on it, is in fact the post tax post NI living wage. To within a few pennies per hour in fact. Thus the ASI recommendation: “lower taxes… to ease the tax burden on London’s low ……income workers”.

    And yes, I do know why the ASI puts it this way: I was the first person to do the calculation which points this out. The living wage, as defined by the campaigners, minus tax and NI is the minimum wage assuming the NMW pays not income tax or NI.

    So the solution is simple: just stop taxing the poor so damn much.

  25. Anonymous

    It’s because you want to control poor people. It’s the slave owner mentality.

    If you take their money and give it back, you can control what they do with it. Plus you get your cut in the process.

  26. Anonymous

    now employers believe they pay enough tax as it is etc

    ========

    They only pay it on behalf of other people.

    If you think employment taxes are irrelevant, raise them 100 fold. It won’t affect employment – not.

    Employer’s will pay wages such that the employee makes profits, or savings in excess of their employment costs. ie. They are profitable. Otherwise they won’t or they will offshore.

    You’re assumption is that profits don’t matter and that employers have to / will carry on paying irrespective of profits.

    Now the biggest cost for min wage earners, is taxation. That’s their biggest single cost.

  27. e-reward.co.uk team

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal: http://t.co/xat1lNLW

  28. Anonymous

    You’re talking about your own sins again, given you support workfare.

    You’re the one who’s a saver, and the one with the shares who is working very hard to torture the 99% for your gods of capital and death.

    This is EXACTLY what I mean, you can redefine anyone who doesn’t pay tax as a non-person.

  29. Anonymous

    To be funded, of course, by stripping services away which they’ll then pay a far higher poverty premium for, so your shares can do better. That you reference the ASI immediately rules out, of course, any altruistic motive.

    The poor don’t pay you nearly enough in your view, got it.

  30. Anonymous

    1. Close the borders.
    2. Stop providing services for the 99% entirely.
    3. Crash the economy entirely, and “rebalance” it so that you get even more and the 99% even less
    4. Profit!

    And yes, right, it’s far too low a debt for you, you need to suckle on the Corperate Welfare teat more. Your Campaign for Chinese Wages rolls on!

  31. Anonymous

    Completely untrue propaganda – It’s housing, followed by food. Utility bills are also starting to crowd out tax.

    You’re quite happy to raise housing, food and utility costs, of course.

  32. JC

    Tax credits are a very expensive bureaucratic way of making the poor dependent on more government. They are in my experience a nightmare when your income fluctuates (probably just the way they were implemented), and almost impossible to get out of.

    I wouldn’t like you to consider me a scrounger if I paid no tax, but I don’t see the point of a minimum wage unless it is also the point at which taxation starts.

  33. Blarg1987

    Youv’e misrad my post, profits do matter ina company, however the mentality of large comapnies now is make a saving so the CEO can have a bonus at the cost of the long term viability of the company.

    Employment taxes cover costs such as health care, use of public services such as roads infastructure etc.

    I think you are wrong about the biggest cost to minimum wage earners is taxation asmost are being taken out of tax through the raising of the tax threshold, which I agree is a good idea.

    The trouble is that we have trickle down economy which does nott work, it is better to give a thousand people at the bototm of society a thusand oiund pay rise then a person at the top a million poiund pay rise as that would generate more employement and economic prosperity locally then the other way around.

  34. patrick

    Why do you hate people who run businesses so much? According to you, everyone who runs a business is ‘evil’ and ‘greedy’ or one of the ‘1%’ dedicated to stealing the wealth of honest, hard-working people by exploiting them. It really is the most simplistic, juvenile view of the world. Do you actually know anyone who runs their own business? Might I suggest instead of thinking of businessmen as these homogenous, Dickensian characters with suitcases stuffed full of money or City whiz kids plundering the nation’s wealth you actually get to know some people in your local community who run businesses, and speak to them about how they got started, and the challenges they face.

    You will find that they are ordinary human beings often struggling to make ends meet like everyone else. Most startups fail within two years. 80% are gone within 5 years. By fail, I mean, they go bust, they lose all the money and time they’ve invested. And of those that survive, most of them provide the proprietor with little more than an average wage. They’re not coining it in on the back of cheap labour. I know this because I used to work as auditor for small businesses.

    I know you have this black-and-white view of the world of ‘evil business owner vs noble worker’ but that isn’t the reality. The small business owners I know are just as motivated to provide jobs and wealth for the community as they are to create wealth for themselves. It’s probably because you work in the public sector that it’s easy for you to demonise a group of people because you never come into contact with them and don’t understand what it is they do. I’m genuinely interested: how many business people do you know?

  35. Anonymous

    I don’t disagree, but the fact is that the Government are out to harshly punish non-taxpayers.

  36. Anonymous

    I don’t “hate” them. You’re making up propaganda based on your own prejudices. The 1% is, of course, very, very different from “people who run businesses”.

    I’m not a public sector worker either, you’re accusing me of things of false pretenses. And I’ve owned shares in businesses. For that matter, I could well end up with equity in a business I’m negotiating with right now.

    Moreover, I’m FULLY pro the free market. I’m simply not a capitalist. Mutualism is not exactly a mile away from the position of the Cooperative party in this country, but I can’t support them as long as they remain tied to Labour.

    Quislings like you attempt to create the illusion that business is business, that there is no difference between a corner shop owner and a banker who gambles with billion’s of other people’s cash.

    Your kind of hatred, black and white view of your “correct” views versus the “incorrect” left…

  37. Jane Lowry

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal http://t.co/vIg2Xe9q

  38. Jane Lowry

    We pay £6 billion yr in benefits to subsidise low pay! support the living wage @leftfootfwd http://t.co/vIg2Xe9q

  39. Josh Post

    RT @leftfootfwd: Why not pay the living wage? The cost to employers could be minimal @SEIU721 @SEIU http://t.co/MQvhNCqF

  40. Lauren Crowley

    "Critics of the living wage must stop exaggerating, as research shows the cost to employers could be minimal." http://t.co/vEg0wSbi

  41. andrea groves

    Why not pay the living wage? The cost to employers could be minimal, writes @LarissaHansford: http://t.co/7H25YjjT

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