A Living Wage?

November 28, 2013

AlivingWageWe all want a living wage and many of us aspire to more. Yet an increasing amount of employment is at National Minimum Wage (NMW) levels. Furthermore, the fact that the NMW has lagged behind inflation (in recent years) makes life much more difficult for those who are dependent on it. So the recent prominence given to the concept of a Living Wage (£8.55 in London; £7.45 outside) is highly understandable.

Indeed the group, Citizens UK, launched a campaign in November to bring more employers into a sign-up process. However those in the care sector, perhaps particularly, fear that a rise in pay will create a further financial burden that will not be reflected in any increases in funding. In any highly labour-intensive sector there is little flexibility.

Are there any advantages?

Recruitment. In the days of high employment (which I remember – just!) workers would move employers for as little as a penny an hour. Today it may need more than a penny an hour to tempt them,  but at NMW levels it may not need to be too much more. Thus a small differential would increase your pool of potential employees.  A bigger pool means more choice and, if you can select well, you will be able to recruit people who meet your preferred criteria. In my experience employers (and HR managers) frequently, and seriously, under-estimate the cost of recruitment. If a Living Wage solves the continual need for recruitment will it pay for itself? Care Home and other managers would do well to “do the sums”. Even a small margin (and even today) could make a substantial difference to recruitment.

Retention. This goes hand in hand with recruitment. Better retention, less recruitment. Better retention has many other knock-effects too, such as realising investment in training even if that “training” is only induction training.

Better care. Inevitably there will be a subjective element to any judgement of this. However John Kennedy of the Joseph Rowntree Housing Trust (JRHT) quoted in People Management, asserts that if people feel more valued then they are more likely to work in an emotionally sensitive way. He says to employers: “a reasonable and fair wage [means] you are more likely to get them to work in the way you want them to”.

Sick leave.  JHRT found that sick leave fell once its employees were on the Living Wage. I experience issues around sick leave as one of the most frequently asked questions of us as employee relations advisers. Like recruitment it is another hidden cost and often underestimated when the disruption it causes is taken into account. Even without the latter employers typically fork out £600 per employee per year as a result of sickness absence (Source CIPD).

Ethics and care. Are we really comfortable with people who are on the NMW, rather than on the Living Wage, looking after people about whom we may care? Should we really be tapping into that section of the labour market where the alternative is undemanding work that requires little or no skill. Is that right where, in the care sector, demands on employees are so much greater?

Ethics and fairness. The other ethical issue is whether we want our employees to have a fair relationship with us (enabling them to live with dignity) or whether we do not regard that as part of our social responsibility.

So is the reluctance justified?

The financial burden will figure high in most employers’ thinking. It is not just a question of additional wages but of National Insurance Contributions and (soon to be the case if not so already) pension contributions. The latter should not be overlooked in doing the sums referred to above.

Differentials will need to be considered because if you raise the level for one group of employees then others will seek to maintain the differential. Much play was made of this in the early noughties when there were some substantial hikes in the NMW. Our experience was that the fear was over-played but, nevertheless, there were some knock-on effects. Anyone contemplating paying the Living Wage needs to factor that risk into the calculation.

Race to the top. In fairness this is hardly a huge risk. But if the Living Wage were to become the norm then the premium and the advantages that it attracts would disappear. To re-invigorate them it would be necessary to pay a further premium. I once worked for a company where the earnings policy was to always pay in the upper middle quartile of earnings. It worked. But if every company had had the same policy then the policy itself would become unsustainable.

Market inflexibility. The concept of a Living Wage is one groups notion of what a Living Wage should be. I suggest that employers should be very wary of tying their remuneration policies to concepts over which they have no control.  Once the Living Wage seen as a contractual right on the part of the employee  (even if only by custom and practice) than that wage level may be difficult to change. What an employer may be able to afford in 2013 may not be what they can afford in 2015. Indirectly the Living Wage is an attempt to fix the market. Whether UK Ltd “got away” with fixing the market by means of the NMW is open to debate. But I suggest employers are unwise to fix employees expectations to an outsider’s concept. Particularly one that employers might not be able to honour subsequently, either because circumstances change or because the concept itself escalates unrealistically.

Regional forces. The concept of a Living Wage is by definition linked to the cost of living and we know that that the cost of living varies across the country. This is another form of market inflexibility.


There is an increasing body of scientific information that supports the view that people deliver more if they feel fairly treated.

The Living Wage can help to inform employers where fairness might lie and enable them to realise those advantages already outlined above. The initial premium may be more than immediately thought but, when the sums are done, the outcome may well be neutral or better. If not, then a lower premium might yield more balanced results.

But in my view, employers should not strap themselves to a Living Wage but rather be guided by it, on commercial and ethical grounds.

Malcolm Martin – QCS Expert Human Resources Contributor


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