The “Pony Politics” of the Living Wage

Obviously the Living Wage is a lovely idea. And so is the offer of a free iPhone 5 for anyone who wants one. Hopi Sen has coined the term “pony polling” for the sort of opinion survey that asks, “Would you like a pony and have someone else pay for it?”

Well, the Living Wage is “pony politics”. Thus it suits Ed Miliband perfectly. His way of doing opposition is to point at things and say how expensive they are. Then to give speeches about the “cost of living agenda”, which suggests that things ought to be cheaper.

Then, to vary the tone, he has given a speech today about the Living Wage, which suggests that people ought to be paid more.

I am afraid that this is not serious. The Living Wage is an important idea. It is one attempt to engage with big questions about the inequality of earnings, but it requires rigour in thinking through what the problems are and how to start to solve them.

The basic problem is one of unequal returns in the labour market. The Labour government made important advances, such as the national minimum wage and spreading higher educational standards, although it also decided to allow free movement of low-skilled central European workers, which may have kept low wages lower. Overall, though, income inequality in the UK did not change significantly in the Labour period.

But, yes, it would be nice if differentials were smaller. The tax system is doing its bit, even if the Coalition Government is too incompetent to collate the figures. So how can the gap between high and low pre-tax pay be narrowed? Ed Miliband accepts that simply putting up the minimum wage for everyone, which would seem to be fair and fiscally expansionary, would put people out of work.

So he takes refuge in the warm marshmallow fudge of the Living Wage. Banks, who don’t employ many people on low wages, should pay it. And public-sector employers. Apart from the NHS, obviously. And any other “socially responsible” company that can be morally coerced into it. What about contract staff and suppliers and cleaners employed by friends of the MD’s tennis partners? Do they have to pay the Living Wage too? No doubt a working party is being set up now.

To summarise, then, it is not a terrible idea, although there are equity issues, as with “fair trade” coffee, about which lucky poor people are chosen to benefit from it. It may be a substitute for the power of trade unions to negotiate higher pay; and I don’t mind the happy clappy stuff about engendering solidarity among low-paid workers who campaign for it.

But, for it to work, it has to be calculated in a way that everyone can understand and support. The rate for outside London, raised today to £7.45 an hour, is reasonable. It is based on surveys of what the general public think is needed for a “minimum standard” of living, and a weighted average of typical households in which the adults work full time (38½ hours a week).

But the method for calculating the London Living Wage of £8.55 an hour (page 7) is just stir-fried wishful tofu. It starts with a similar method, but this produces an hourly rate of only £6.85, for reasons I have not had time to go into, so the Greater London Authority moves it up halfway to 60 per cent of London median earnings, and then adds 15 per cent more for luck – by which I mean 15 per cent for “unforeseen events”.

Given the weakness of the case for the Living Wage in the first place, this kind of make-up-a-number method is folly.

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• http://www.facebook.com/profile.php?id=745321918 Kristi MD Winters

  How should a democracy then redress the wealth inequality produced by capitalism? If governments want to incentivise work then people must make enough to live. Are we going to continue to subsidise capitalism with tax money through benefits or demand employers pay enough to ensure people do not need to rely on government benefits? I don’t see another option.

• greggf

  “Are we going to continue to subsidise capitalism with tax money through benefits….”

  This is a chicken and egg question – which gives rise to which?
  Employers know that an employee may claim various benefits if his/her income is below a certain threshold deemed his/her “Needs”, and may, given the circumstances, exploit this fact. So curiously the benefits system may be said to be partly to blame for low wages. In fact the state effectively subsidizes and patronizes low wages not capitalism.
  If Ed Miliband accepts that putting up the minimum wage for everyone would put people out of work he must, by implication, be censoring a benefit system that may subsidize wages to an uncompetitive level were the subsidy added to the costs of the enterprise directly.

• http://twitter.com/PCS_Northwest Regional Secretary

  *cough* Collective bargaining *cough*

• creggancowboy

  On £69 we do not worry about the living wage, merely on getting a victory on the rich.

• takeoman

  “For reasons I have not had time to go into”, as always Rentoul J. fails to do the research.

• bobirving

  If your business model relies on not paying your full-time employees enough to live on, should you be in business anyway? Who starts a business in the belief that the state will subsidise their wage bill?

• andyholmes

  It was the minimum wage policy that’s now responsible for the lack of jobs paying the “living wage” in the first place.
  Unsurprisingly, many employers saw the official figure as an acceptable wage, instead of testing their own local jobs market.

  Jobs that used to pay a living wage now pay less, and introducing a living wage will have exactly the same effect on wages currently in the £8-£10 p.h.

• SeekTruthFromFacts

  This is unfair on stir-fried tofu. I had some yesterday and it was good, natural, wholesome food.

• Pacificweather

  The Labour goverment increased employer subsidies when it should have reduced them to zero. Without these subsidies, all full time employees would be on a living wage or they would dead. Are the unemployed paid a living wage or a dying wage I hear you ask? What is the value to capital of a pool of available labour? Is that why God created Poland? All these questions and many more we can be sure JR will say the answer is no.