Why we should fear the National Living Wage

The term ‘living wage’ may cause the legal minimum to become the going rate for low-skilled work.

 

Today sees the introduction of the much publicised National Living Wage (NLW). The NLW will be paid to those aged 25 and over, and will be set at £7.20 per hour (with an initial target for it to reach £9 by 2020).

However, unlike the independent living wage set by the Living Wage Foundation, the NLW is not subsistence based.

Rather, the NLW will be set as a proportion of the national median wage, despite the fact that doing so may cause unemployment. This is not the same as the national minimum wage that is set to ensure as many workers as possible are protected from low pay, whilst minimising job losses.

This understanding of minimum wages, as wage floors, is different to that of living wages, which are set against criteria to ensure one can maintain a decent standard of living. What is actually being introduced is a higher national minimum wage.

So why mislead the British public?

One reason reflects the realisation amongst conservatives across Europe that minimum wages are politically useful; their public popularity more than outweighs their potential to cause unemployment.

At home, the Conservatives have bargained that a higher minimum wage will improve their support amongst working class voters.

The NLW is set to increase the pay of up to one in four workers in poorer parts of Britain, providing a firm foundation for the development of ‘blue collar’ conservatism, with its appeal to ‘aspirational’ voters and our new ‘high-wage, low-welfare’ economy.

Considerations of semantics and politicking aside, there are genuine concerns amongst employers and workers that the NLW will hinder the effectiveness of a statutory system that is widely considered to be the most advanced in the world.

A common response from businesses when faced with higher wages is that in order to adjust they will have to make redundancies. Decades of research has shown that job losses directly attributable to increases in minimum wages are minimal. Suggestions by the British Retail Consortium that up to 900,000 jobs could be lost by 2025 as a consequence of the NLW and other pressures are no doubt exaggerated.

Unusually, it is disquiet amongst small and medium sized businesses that is making the headlines.

Sectors such as agriculture and social care, where between 60 and 70 per cent of total business turnover is spent on labour costs, have warned that in order to remain competitive they will have to reduce employment.

They argue that adjustment channels such as investing in productivity improvements are not possible without support from local or central government. Safeguards for such industries, as have been introduced in other countries (e.g. Germany), have not been forthcoming.

Workers themselves are somewhat ambivalent. Although the increase returns the minimum wage to its real value before 2008, it will initially be less than two-thirds of the national median wage and is thus still a low wage by international standards.

Moreover, the labelling of the NLW as a ‘living wage’ has raised concerns the new legal minimum will become the ‘going rate of pay’ for low-skilled work.

As ‘normalisation’ occurs, it becomes increasingly difficult for workers to justify higher pay without trade union representation.

What’s happening to Britain’s minimum wage? Such issues are not in keeping with its reputation as the pinup of statutory systems. The answer lies in the way the NLW was announced and the possible future direction of the Low Pay Commission (LPC).

The surprise inclusion of the NLW in last summer’s budget by George Osborne was made without the consultation of the LPC. The role of the body responsible for setting the minimum wage has been further undermined by the government’s introduction of a target for its future level.

What use are the LPC’s recommendations if targets are to be set in advance? For employers and workers, the conciliatory and evidence-based approach of the LPC would have gone a long way towards allaying some of the fears now expressed.

This point cuts to the real danger of the NLW: the replacement of social partner cooperation with government unilateralism in setting minimum wages will fundamentally alter the operation of the LPC.

As an example of Blue Labour thinking, the success of the current system is a result of the agreement it seeks to foster. What industrial democracy there is in Britain is being undermined without protest.

We should be asking why these issues haven’t been raised by those in the shadow cabinet, in particular Angela Eagle, and press them to do so. However, the launch of Consensus – with the backing of Jon Cruddas – raises hope for the defence and future promotion of Blue Labour institutions such as the LPC.

What was initially indignation at a policy mis-sold to millions is slowly turning into fear for the future of a system that was one of New Labour’s greatest achievements.

George Wilson is a doctoral candidate at the University of Leeds, focusing on minimum wages and employment law. He tweets as part of @Lex_Laboris

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