Saturday 1 October 2016

The Living Wage: it's a nice name but is there a sting?

Published 27/08/2015 | 02:30

That is the significance of the name. It does not look good for a company to refuse to pay a 'living wage'.
That is the significance of the name. It does not look good for a company to refuse to pay a 'living wage'.

A rose by any other name may smell as sweet, but calling a nettle a rose does not make it so. There can be a lot to a name.

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A new name is entering the economic/political lexicon with remarkable speed - the 'Living Wage'. At the end of next month there will be one of those grand forums in Dublin Castle without which, nowadays, no serious policy can be launched.

At this one the usual suspects will discuss "how a living wage can be introduced into more workplaces in Ireland". One cannot help but notice the absence of words like "whether" or "should" in that description of the forum's purpose.

Perhaps that is to be expected. The junior minister in charge, Labour's Ged Nash, has already made clear that he is all for State bodies and agencies paying living wages. But then, who could be against it?

That is the significance of the name. It does not look good for a company to refuse to pay its workers a "living wage." Siptu hopes payment will become the target for "progressive employers". We can see what that says about the others.

It would look even worse for a public body not to be equally progressive. Fortunately, even before the forum's deliberations, the evidence has convinced Minister Nash that such payments will reduce absenteeism, increase productivity and help staff retention.

This seems a sweet-smelling blossom indeed. Fast-growing too. In Ireland, it has risen without trace from obscurity to a pre-ordained Forum in the Castle but the concept has been around for some time. In Britain, firms can voluntarily agree to pay the living wage and some 1,500 firms have done so, although many are in highly-paid sectors where it makes little difference. Just in case there is any doubt, the living wage is not the same as the minimum wage. The two things are quite different. Utterly different, one might say. At least for now. The minimum wage, soon to be €9.15, is the lowest amount per hour which an employer must, by law, pay its workers. The living wage is - well, that is quite a complicated matter.

The idea looks simple, although the details are fiendishly complicated. The concept is that work should pay enough to allow individual employees, with no dependants, afford a socially acceptable minimum standard of living.

There are more questions begged in that statement than one could shake a stick at. That became clear when it came to calculating such a wage. Focus groups helped decide what the public thinks is the essential minimum standard, but there is no single answer, since it depends on family situation, where somebody lives and their potential working hours.

Of course pay cannot generally be geared to circumstances, and things like a Dublin weighting are not popular elsewhere. We are left with a headline figure, which is no more than an approximation but which has the handily precise number of €11.50 an hour.

Complexity has a very short shelf-life. We are now told that it "has been established" that the living wage is actually €11.50 an hour. Mr Nash may have given his seal of approval to that figure but, while the Living Wage Technical Group did a lot of good work on living costs, it has "established" nothing.

That is not the nature of the process. All that can be done is provide data on which what are complex decisions with uncertain consequences can be taken. The name, and the appearance of certainty, are attempts to convey that those decisions are obvious one. They are anything but. What, for instance, is to become of the minimum wage? The living wage may start out as a voluntary measure for decent-minded employers (Swedish IKEA will pay it from April) or for cynical profitable ones who pay more than that anyway; but unless you've just arrived from the Planet Zog, you will know that the demand that it be compulsory will soon be made.

In addition, those of us who have been here some time can reasonably assume that, once it is paid in public bodies, attempts will be made to re-establish relativities all the way up to six-figure salaries; and not just the €2.35 extra payment above the minimum but the 25pc increase that it represents.

There is also the inescapable fact that, whatever about its social merits, the living wage is inflation-linked, being based on the cost of living - a different one from the Eurostat's. Such linkage has always been the trade union position (except when the cost of living was falling) and it is what generally happened in practice.

But it has not usually been set out as policy, which may have been very wise in a country like Ireland where most inflation comes from abroad and takes no account of our particular circumstances. Formal linkages are seen one of the causes of the woes in Latin countries

Speaking of abroad, while the living wage may have popped up quite suddenly here as a policy, it is part of some kind of trend.

The British government has promised a large increase in the minimum wage, New York State has applied a minimum wage of $15 per hour in fast food joints - double the federal minimum - and President Obama used an obscure power to increase legal overtime payments for workers earning less than $50,000 a year.

Many see in such developments a response to the increased casualisation of work as a result of technology.

There is no doubt that policy will have to change dramatically in many areas if this is not to impoverish large swathes of the workforce, and American workers have lost out more than most.

Equally, Mr Cameron's promise is the flipside of cuts in working tax credits, which seemed highly effective in both encouraging work and protecting incomes, but at substantial cost to the public purse. He is already conflating the minimum and living wages, with a figure of £7.20 an hour (€8.80 at historical exchange rates) for both.

Any policy in wages, whether minimum or living, has to take account of the other policies in place in a particular country. Some Irish statistics make interesting reading. One, from the OECD, shows the number of hours work per week on the minimum wage needed to get above the relative poverty line of half median household income.

Britain and Ireland, where less than ten hours work will achieve this goal, are in a virtuous class of their own out of 26 countries surveyed. An unfortunate Spanish or American worker needs 50 hours a week, but all other Europeans surveyed need to do more than us.

This is a product of the tax and welfare systems. It is only one of many considerations which should be examined before conclusions can be reached. The Irish minimum wage represents 60pc of median earnings, which is one of the highest internationally and Mr Cameron's target.

The proposed living wage, below which, it is asserted, one cannot have an acceptable life, is around 70pc of median earnings. Since by definition, half the workforce earns less than the median figure this seems a bit odd, to say the least. What's in a name? Quite a lot, it would seem.

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