Will consumers make it worth employers’ investment in the Living Wage, by shifting their custom to those who pay decent wages?

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IPPR and the Resolution Foundation have published research (pdf) today on how much implementing a Living Wage policy would cost businesses by sector.

It is not as much as you would think, generally being no more than about five per cent increase in the wage bill for all sectors other than restaurants and bars:

“The results make clear that the estimated average wage bill increase as a result of implementing a living wage across different industrial subsectors is closely associated with the proportion of jobs currently paying less than a living wage within them.

“The results show that the estimated average wage bill increase as a result of introducing a full living wage (scenario one, or £8.30 per hour in London and £7.20 per hour elsewhere) is significant in the major low wage sectors of general retailers, food and drug retailers, and bars and restaurants (yielding an increase of between 4.7 and 6.2 per cent) while relatively small in other sectors (an increase of around 1.0 per cent or less. [As Figure 4 shows].”

Figure 4:



Once wage spillover effects – any increases to those already receiving a living wage as a result of the implementation of the policy – are included, it adds up to a further 0.5 per cent to wage bills. Moreover,the report is restricted to looking at London Stock Exchange companies, who will be far more resilient than small businesses.

Living Wage campaigns tend to aim at businesses voluntarily adopting the standard, not increases in the statutory national minimum wage.

Therefore, the question is whether consumers will make it worthwhile for employers to invest in Living Wage, by shifting their custom to those who pay decent wages.

There is room for optimism. The Fair Trade market is now worth more than £1 billion per year. Meanwhile, major firms such as Kelloggs, PG Tips and Hovis are willing to invest in kosher accredition, despite there only being around 200,000 Jews in the UK, of whom only a fraction will be kosher-observant, showing how small shifts in consumer behaviour can effect the dynamics of business investment.

See also:

Trade unions and churches have access to millions of consumers. If they got behind a public awareness programme, the effect could be dramatic.

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