The Living Wage: Reasons for Adopting It.

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The Living Wage: Reasons for Adopting It.

The Living wage is a wage high enough to uphold a high standard of living in a specific area, for example in 2017, London’s living wage is £9.75 (calculated by the Living Wage Foundation). This has increased from £9.40 in 2015. This increase highlights that the living costs in the Capital are rising, the rising living costs (such as inflation regarding day to day products and necessities) have put an upwards pressure on wages, with the Living Wage Foundation continuously protesting for the wages to meet the London Living Wage. But is the London Living Wage serving as a blessing or a curse?

According to the Living Wage Foundation, paying the living wage is good for business. ‘93% of the Living Wage Employers reported that as a business they had gained by becoming a living wage employer’ with ‘78% seeing an increase in staff motivation’. This implies that by paying the London Living Wage to employees, they begin to feel valued as employees as they are maintaining a high standard of living due to their employers paying them a healthy amount, this in turn means that they will work harder, and possibly work more hours. This helps with productivity. Currently, the UK have one of the lowest productivity rates in the G7, if businesses across the country could pay the living wage, it could mean that nationally, our productivity may increase. If our productivity increases, business costs will decrease, and our prices will decrease, therefore meaning we are more competitive nationally as we will be able to sell our products abroad at a lower price than other countries. For individual businesses, becoming a living wage employer could reap even more benefits, as according to the Living Wage Foundation, 86% of the businesses that took the survey experienced more positive press, and an increase in good reputation. Despite all of this, some businesses are reluctant to offer the living wage.

The London living wage may not necessarily lead to an increase in productivity, if productivity does not increase, businesses costs will increase instead of decreasing as they would be paying higher wages, with labour costs increasing, production costs also increase and internationally our products become less competitive, which leads to a deficit on our balance of payments regarding imports and exports.

However, paying the London living wage is beneficial for the UK government, as with higher wages, people in the economy will be able to spend more, an increase in consumption means firms are experiencing higher retained profits, this allows firms to expand their productive capacity, meaning that they will have to employ more people. Through this, the unemployment rate in the country falls, the average earnings in the economy increases and people will be able to spend even more. Thereby, consumption continues to increase, and a positive cycle begins. If the government can control consumption in the economy effectively, the economy will thrive for a very long time. This all starts by more firms and organisations paying the London Living Wage, if firms outside of London pays at a similar rate, there will be more evenly spread out wealth in the country, not just in London.

 

Comment by Obuasa Djabatey.

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