Opinion

Embrace the positives of the Living Wage and deal with the negatives

5 min read

10 September 2015

The Living Wage has taken a battering this week with warnings about the impact it will have on jobs and shop prices.

Fans of the National Living Wage have taken a bit of a battering this week. Chancellor George Osborne’s big Budget day announcement was described by CBI director general John Cridland as a “gamble” which could stymie UK employment.

He said: “I’ve talked to many chief executives who feel they may now have to make changes to their business models, which could result in fewer job and progression opportunities. It’s business investment which drives productivity growth. And it’s productivity on which wage growth depends. All three are now rising. But wages can only grow as businesses grow. 

“A £7.20 National Living Wage in 2016 and a £9 National Living Wage by 2020 are laudable objectives, but they are a gamble. They depend on organic productivity improvements. And we should be careful what we wish for. Our jobs-rich recovery is a success which depends on entry level jobs and progression routes on our high streets and in our leisure sector.”

Clothing retailer Next also predicted that the Living Wage would play a part in a six per cent rise in store prices by 2020 as it not only raises wages for shop staff but managers and other skilled roles as well.

Earlier this week Costa Coffee owner Whitbread said it would also have to raise prices in some of its chains because of the new wage.

These two firms are being sensible in realising that a major effect of increasing the wage for low skilled and entry staff will be pressure on maintaining a sensible differential with those higher up the career and company chain.

A middle-manager may not be too impressed to see that someone they believe is perhaps working fewer hours and with less responsibility than them is enjoying a bigger salary hike.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: ‘Paying employees the minimum wage could be the tip of the iceberg for UK employers, because increasing salaries for the lowest paid has a knock on effect on the wage demands of other workers. No junior manager is going to be happy if they are being paid the same as the newest trainee. 

“This is likely to result in an upward drag on salaries, as companies filter progressively smaller wage increases up the pay grades. Employees earning at, or just above the Living Wage can expect to feel the biggest benefit, aside from those who have had their pay brought up to the new minimum.”

It is early days of course for the Living Wage and it is good that a debate is emerging around it. When a major change like this is proposed positives and negatives will emerge and after these have been identified then something more stable can emerge.

What we have to be careful of though is to be railroaded by the heavy corporates of this world warning us that the main effect of the Living Wage will be to raise shop prices and potentially cause inflationary pressures with rising earnings throughout a business not just at the bottom.

The raison d’etre of the change still resonates and that is spelt out in the title. It is a Living Wage which has been created to help staff on previously meagre salaries cope with the pressures of everyday life. To help them raise their families and enjoy their leisure time away from work. To respect the work they do for our businesses and if we can get happier employees then more productivity may emerge from that as well.

It is a little like the current refugee crisis. If something feels like the right thing to do then it often is the right thing to do and we have to cope and bend and alter our thinking and policies around to cope the best we can.

Don’t get too entrenched in the potentially negative consequences of the Living Wage – embrace it and make it work for your business.