Why the living wage must be compulsory

By Darrell Goodliffe

I am fully in favour of a living wage and making it work. I would therefore welcome a Labour Party commitment to this policy. However, I do have problems with the insistence it should be voluntary which is clearly implied in the argument that companies be given tax breaks in exchange for paying it. Indeed, I feel that were a living wage to be voluntary there would be a serious risk it would be counterproductive and actually widen the yawning chasm of social inequality that currently confronts us. If it is voluntary, the living wage will undermine the minimum wage; depress wages lower down the scale and achieve in practice completely the opposite to what is intended by amplifying the “cost of living crisis” for many.

Of course, the obvious problem is that some companies will pay a living wage and some will not. However, this masks the real problem with a voluntary living wage. The key problem can be summed-up in one word – inflation. Price-driven inflation is actually the primary cause of the “cost of living crisis” that Ed Miliband seems to have made his new catchphrase. Currently, like a hyper-active lemming hurtling towards a cliff-edge, the government is actively stoking the fires of this phenomena with prize pieces of economic madness such as hiking VAT to 20%. Meanwhile, the traditional method of controlling inflation – raising interest-rates – can’t really be pursued lest it make the social situation ten times worse; driving people out of their homes by ballooning their mortgage repayments and increasing the mountains of debt they are buried under.

Since wages are currently depressed, to put it mildly, no progress is really made on the mountains of bad debt that underpinned this crisis because people are still struggling to survive, let alone trying to repay these debts. Since revenue isn’t dramatically increasing, the same is true for the government which is currently having to borrow even more to meet the cost of its frankly loopy austerity drive. People are being crushed mercilessly in the economic vice of rising prices and falling, in real terms, wages; not to mention an oversupply of surplus labour vis-à-vis demand as companies still refuse to be anything other than cautious.

A compulsory living wage would inflate wages across the board in a way that might begin to allow people to keep pace with price-driven inflation. What is more, because people would be earning more, the pressure to keep interest rates low wouldn’t exist on the same scale and they could be raised to take the sting out of the rise in inflation caused by the increase in wages. However, a voluntary living wage would still fuel inflation but would not increase the scope to do anything about it. So, prices would be rising but income wouldn’t be for those who were not employed by the charmed circle of companies willing to pay the living wage. Obviously, these people would be trapped in a dire “cost of living crisis” and the gap between them and those at the top would become even wider; even if those at the top ‘stood-still’ because, relatively speaking, they would be falling back.

If we are serious about tackling inequality therefore, the living wage will have to be part of a broad package of measures – and it will have to be made compulsory.