What Could Setting 'Living Guidelines' Do for the Economy?

Labour leader Ed Miliband has backed the idea of a living wage, stating he may make it part of his party's manifesto for the next election. It is a simple idea that aims to lower the amount of people living in poverty in the United Kingdom. The labour party believes that by giving employers a guideline of how much it actually costs to live it will encourage them to pay their staff fairly.

For example, the national minimum wage for people over 21 years of age is currently £6.19 (for 18-20 year olds it is considerably lower at £4.98). The living wage has been set at £8.55 in London and £7.45 in the rest of the United Kingdom. This means if a 19 year old was working full time on minimum wage and living on their own in London they would be short of, on average, £2.47 a month.

Reliable data from the Annual Survey of Hours and Earnings 2011 (from the Office for National Statistics) shows that, of the adult workforce who work full time, the lowest 10% of workers earned on average £7.04 an hour. The top 10% earned on average £26.63 an hour. Meanwhile amongst the part time UK workers the lowest 10% earned £5.93 and the top 10% earned £19.92, and 40% of part time workers earned £7.19. This is a considerable portion of the working population who aren't earning enough to support themselves independently.

Some employers pay their employees over the living guidelines anyway so the guidelines don't apply to them, however, only roughly 140 employers take note of the living wage guidelines and pay accordingly and some employers pay less than the living guidelines without being aware of it. Of course, at the moment the living guideline is just that, a guideline. Employers are under no obligation to pay their workers any more than the minimum wage.

This isn't a new development. It was developed to the way it is today in 2005 when it was picked up but the Greater London Authority. Since then it has be supported by Ken Livingstone and, more recently, Boris Johnson as well as other UK employers. The cleaning staff at the Houses of Parliament went on strike in 2005. Their aim was to bring their wages up to meet the living guidelines, which they achieved in 2006.

With the Labour party backing the idea, it has been given fresh perspective. If employers are encouraged to pay their workforce slighter higher, the government could potentially save millions every year of the amount they pay out in benefits.