The living wage: where morality and economics meet

Why is the Living Wage taking off as a concept at a time when it might seem least affordable? Donald Hirsch explains.

For some time I have been puzzling about why the ‘living wage’ should be taking off as a concept just at a time when it might seem least affordable. After all, private employers are finding things far tougher than a few years back when there was easy credit and soaring demand, while public employers see budgets pared to the bone. Shouldn’t we have been surprised - during last week’s ‘Living Wage Week’ - to see the idea being enthusiastically embraced by everyone from multinational companies to city councils and churches; cheered on by a range of social commentators, the Labour Party and the Conservative Mayor of London?

But then the tone of that cheering gave me a vital clue. Yes, the economic pressures are high, but so, now, are the moral pressures. Asking a large, profitable company to make a small effort to ensure that wages mean an acceptable living standard is a powerful request. Several factors feed this. Capitalism is not at its finest hour, and big business has work to do convincing us all that it can behave responsibly. On the other side, we all know how tough it is to keep up with rising living costs at a time when wages are not rising, and can sympathise with those on the lowest pay who can least afford this. Finally, the voluntary nature of the Living Wage puts paid to counter-arguments that obliging firms to raise low pay will destroy jobs.

At present, the moral pressures are winning out over the economic pressures for a number of employers wanting to be seen to do the right thing. It is argued that there is no real conflict between the economic and the moral – because paying workers more makes business sense as they become more productive and turnover rates fall. But the fact that British employers appear to have gone for such a long time without realising what is best for them makes me think that, at the very least, they need a nudge. An important fact for many is that the up-front costs are not high. Many public and large private employers with relatively few workers only a bit below the living wage can gain the moral status of Living Wage employer with only a very small increase in their total pay bill.

But the greater significance of getting accredited as a Living Wage employer relates to the future. This is a commitment to ensure that the worst-off workers do not lose out as living costs rise. It injects a form of morality into the labour market that is different in kind to that of the minimum wage – which does outlaw miserably low wages but does not set a threshold with any systematic relationship to what people actually need. In contrast, the Living Wage is based on a minimum living standard, rooted in research on what is regarded as acceptable in the UK today.

Morality and economics have sometimes made uncomfortable bedfellows – yet in contrast to some of his latter-day admirers, the father of economics Adam Smith drew many links between the two. On 21 November the General Synod will be debating whether the Church of England should become a Living Wage employer. An interesting topic, given the title of the best-known work of the incoming Archbishop of Canterbury: Can Companies Sin?