Since its introduction in the UK in 2001, the campaign for employers to go beyond the government minimum to voluntarily pay a real Living Wage has raised the wages of at least 150,000 people. It has made employees feel properly valued for the work they do and the contribution they make. It has improved the incomes of some the poorest families and delivered wages high enough to live on. The benefits are not just confined to workers. There is also a growing body of evidence showing the advantages to accredited employers and wider society.
Despite these improvements, around a fifth of workers are still paid less than the voluntary Living Wage (affecting women more than men, more part-time workers than full-time, and with low pay concentrated in accommodation and food services and retail). A large share of these low paid workers are known to be employed in our major cities and city regions, and they are more likely than higher paid workers to be concentrated in just a handful of firms.
Although the share of employees in low pay is sometimes higher in city regions, there has been very little national attention given to the potential impact the real Living Wage could have on local economies. However, with the first elections of metro mayors and a new policy focus on cities and combined authorities, questions about whether to fully champion the Living Wage as a driver of inclusive growth throughout the UK have become more pertinent. The evidence in this report and others clearly demonstrates the power of the Living Wage to boost wages for those on low incomes and make the labour market fairer and more inclusive.
However, when assessing the impact of the real Living Wage on city economies the key consideration is whether increased wages for low income workers boosts productivity, or whether costs are simply passed on to others locally, with little additional economic benefit. This report seeks to address this question, and explores how the take-up of the real Living Wage is likely to impact growth within a city region.
Evaluating the impacts of the real Living Wage at a spatial level is complex and depends on several variables, not least the state of the local labour market and the types of business activity. The starting point for this assessment is to look at how the government approaches the issue of a higher wage floor and examining the evidence from the impact of the introduction of the National Minimum Wage. Based on the findings from studies on the National Minimum Wage the approach adopted in the report is to see wages as an investment which can create value, rather than a cost to be cut. Instead of simply pushing up prices or unemployment, a credible and fair Living Wage could pay for itself through productivity gains, as employees become more committed and employers seek to get more out of the workers they are investing in.
Using these findings, the report sets out potential scenarios for what an increased Living Wage take-up would mean in 10 major city regions geographically spread across the country. This includes the impact on the wages of those slightly above the real Living Wage, multipliers created by additional spending power of workers, and how the Treasury would benefit from increased tax revenues and reduced benefit payments.
The report’s findings suggest that if Living Wage take-up is scaled up there are significant potential benefits to local economies, with higher wages boosting productivity and providing additional local spending. And this shift to the high road could be encouraged by mayors and local councils making business and skills support contingent on paying the Living Wage. As a large proportion of the financial gain goes straight to central government there could be potential for elected mayors and combined authorities to strike new deals with ministers focused on sharing the rewards, and further driving local economic and productivity growth.