Blog
£7-45 an hour - a living wage in London?
30th July 2008
The London Mayor Boris Johnson has issued a report that raises the ‘living wage’ in London to £7-45 an hour. It is an interesting example of a policy designed to create an informal pay floor for thousands of low-paid workers throughout London which is higher than the UK national minimum wage and which reflects the increased cost of living in the capital.
The report from the London Mayor’s Economic Unit is itself a valuable piece of applied economics - giving weight to what is sometimes known as the efficiency wage model - namely that paying workers a fair (equitable) wage for the job they do have economic as well as social justification - this paragraph from the report is pertinent.
“Paying the London Living Wage is not only morally right, but makes good business sense too. What may appear to a company to be an unaffordable cost in a highly competitive market should more often be viewed as a sound investment decision. I believe that paying decent wages reduces staff turnover and produces a more motivated and productive workforce.”
The living wage concept is also of interest - five core living costs are built into the calculation namely
Housing
Council tax
Transport
Childcare
All other costs (a ‘regular shopping basket’).
“The Living Wage is defined by the Family Budget Unit as, “a wage that achieves an adequate level of warmth and shelter, a healthy palatable diet, social integration and avoidance of chronic stress for earners and their dependents.”
For a couple with two children and two adults in full-time employment, the report finds that the average cost of childcare rises to more than £212 a week - the biggest single item in the cost of living basket - rising above that of food. For couples and single people without children, housing costs dominate.
There is an enormous skew in the distribution of wages in the London economy - the report finds that 15 per cent of full-time employees earn less than the Living Wage of £7.45 per hour in London. The key to the success of this initiative is the ‘take-up’ from employers across the government, private and the third (voluntary) sectors of the London economy. A number of high profile private sector businesses are already involved including KPMG, HSBC, Morgan Stanley together with the London School of Economics and the Greater London Authority.
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.