The living wage: concepts, contexts and future concerns

Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged.

Adam Smith 2013 (An Inquiry into the Nature and Cause of the Wealth of Nations, 1, viii: 36)

It is a serious national evil that any class of His Majesty’s subjects should receive less than a living wage in return for their utmost exertions. It was formerly supposed that the working of the laws of supply and demand would naturally regulate or eliminate that evil … Where in the great staple trades in the country you have a powerful organisation on both sides, where you have responsible leaders able to bind their constituents to their decision, where that organisation is conjoint with an automatic scale of wages or arrangements for avoiding a deadlock by means of arbitration, there you have a healthy bargaining which increases the competitive power of the industry, enforces a progressive standard of life and the productive scale, and continually weaves capital and labour more closely together. But where you have what we call sweated trades, you have no organisation, no parity of bargaining, the good employer is undercut by the bad, and the bad employer is undercut by the worst; the worker, whose whole livelihood depends upon the industry, is undersold by the worker who only takes the trade up as a second string, his feebleness and ignorance generally renders the worker an easy prey to the tyranny … where those conditions prevail you have not a condition of progress, but a condition of progressive degeneration.

Winston Churchill MP, Trades Boards Bill Debate (Hansard 1909)

No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.

President F.D. Roosevelt, Statement on National Industrial Recovery Act, 1933

A ‘living wage’ implies a basic income that provides more than mere subsistence, enabling participation in society and some scope for workers and their families to insure against unforeseen shocks. As the quotes above suggest, the concept is nothing new; Stabile (2008: 3) even traces the idea back to Plato, Aristotle and Saint Thomas Aquinas. He also emphasises the exceptionalism of contemporary orthodox economics in neglecting or disabusing the idea of a living wage given that ‘economists from Adam Smith downwards to the twentieth century supported the idea of a living wage based on the sustainability and capability of the labour force and the externality effect of not ensuring that sustainability and capability’. It became a conventional argument of such economists and reformist politicians that living wages were necessary to sustain the development of human capital (and what radical economists might refer to as ‘the social reproduction of labour power’), as well as defuse potential social problems such as crime and conflict.

Hence, as the opening quotations also attest, political notions of social justice and moral considerations of ethics and reciprocity equally shaped the living wage debate, such that a living wage became widely seen as a mark of a civilised, progressive society. The International Labour Organization (ILO) sees decent work and a living wage as integral to the dignity of labour, balancing work and family life and sustaining well-being and social cohesion by ensuring `workers a minimum wage that will provide a satisfactory standard of living to them and their families’ (ILO Committee of Experts (1992), in Anker (2011, 1). This follows in the tradition of the United Nations’ Universal Declaration of Human Rights (1948), which recognises the need for workers to earn a living wage, as does the original ILO Constitution (ILO 1919).

There has been a renewed interest in the living wage in recent years (ILO 2009), especially in Anglophone liberal market economies such as the United Kingdom (UK), the United States (US) and New Zealand (NZ). Various considerations have fuelled this development. These include a declining wage share of national income, due to weaker trade unions in the context of high productivity growth (Bivens et al. 2014; Tomei, in Anker 2011: v); the rapid expansion of the working poor through low-skilled and precarious work (European Foundation for the Improvement of Living and Working Conditions 2002; Standing 2011; Schmitt 2012; Shildrick et al. 2012); growing wealth concentration and social inequality (Wilkinson and Pickett 2010; Rashbrooke 2013); and, more optimistically perhaps, the promotion of corporate social responsibility (Anker 2011; Hopkins 2003). Changes in the structure of work, notably the tertiarisation of the economy, the growth of small and medium sized enterprises, and heightened international competitive pressures, also mean that the state became more reluctant to intervene to regulate low pay (Arrowsmith et al. 2003).

Notwithstanding this, the essential relativism of the living wage concept – defined as it is in terms of higher human needs for social participation and capacity development, both for individuals and their families – makes it difficult to agree on what might constitute an actual living wage in any society at any given point in time. (Similar difficulties apply when attempting to define what is meant by the connected concept of poverty; Lister 2004.) The lack of agreed definition or methodology for measuring a living wage is a major obstacle to implementation and evaluation, and means that `living wages are accepted more in theory than in practice’ (Anker 2011, 52). However, this conceptual ambiguity and political and corporate hesitancy also opens a space, by necessity, for social mobilisation.

In the US, the birth of the modern living wage movement is commonly located in the city of Baltimore (Luce 2004). In 1994, the Baltimoreans United in Leadership Development (BUILD) coalition of churches, trade unions and neighbourhood groups rallied for a living wage after observing full-time employees coming to their soup kitchens and needing additional assistance. This kick-started a national campaign focused on the public sector and, by the late 1990s, more than one hundred municipalities and universities throughout the US had implemented living wage ordinances (Reynolds and Kern 2003; Luce 2004). Currently, more than 140 American municipalities have living wage laws (Lammam 2014).

In NZ, the first living wage campaign was launched in 2012 in Auckland and Wellington, followed by other local networks around the country. An incorporated society was formed the following year as the Living Wage Movement Aotearoa New Zealand (LWMANZ). This is a coalition of faith-based, union and community groups agreeing that `[a] living wage is the income necessary to provide workers and their families with the basic necessities of life. A living wage will enable workers to live with dignity and to participate as active citizens in society’ (LWMANZ 2015). The LWMANZ uses rates calculated by the independent Family Centre Social Policy Unit (see King this volume) and, by the end of 2015, it had accredited around 40 organisations as living wage employers (LWMANZ 2015).

In the UK, a similar broad-based living wage movement, originating in London, also utilised authoritative independent calculations of the living wage through the Resolution Foundation and the Centre for Social Policy at Loughborough University (Wills and Linneker 2014; Prowse and Fells this volume). That the Greater London Authority also makes its own annual calculations for the capital city lent further credence to the notion of a living wage independent of and above the statutory minimum wage figure. Interestingly, the Conservative government has itself now adopted the living wage terminology by calling the state’s minimum wage rate (for workers over 25 years) a living wage (HM Treasury 2015). This is not the calculated rate of the Living Wage Foundation, which has caused some confusion. However, the new official ‘living wage’ is predicted to deliver significant pay increases to large numbers of low-paid workers, though at the price of reductions in state benefits (D’Arcy, Corlett, and Gardiner 2015).

By contrast, in Australia, the living wage discourse has not really taken root. This is likely explained by the persistence of relatively robust collective bargaining mechanisms (including Awards) and a national minimum wage that is one of the highest in the developed world (Fells 2015; Healy 2015). In continental Western Europe, too, where there is a strong social contract rather than market-driven approach to welfare and labour market policy, including relatively strong trade union rights and high minimum wage rates, the notion of a living wage also holds less resonance. In this context, trade unions and allied politicians have often focused their campaigns on reduced working hours rather than higher rates of pay (Arrowsmith 2013).

In developed countries, therefore, the living wage agenda is framed by varied and shifting institutional and political considerations relating to rights at work, poverty reduction and social inclusion. In the developing world, the living wage usually has a very different meaning altogether. In countries with limited employment or trade union rights, where any minimum wage rates are very low and weakly enforced and state systems of social security are rarely provided, the living wage is articulated more in terms of subsistence and income security. Here, international non-governmental organisations (NGOs) have increasingly played a significant role. For example, the Asia Floor Wage Alliance, an international alliance of garment trade unions and labour rights activities from across Asia, was established in 2005 to promote a living wage covering the basic living costs of one working adult, one child-caring adult and two children (or one working adult and two elderly adults). In addition, in the garment industry, the campaign group Labour Behind The Label (LBL) pressures firms in the developed world to improve pay and conditions for workers through their international supply chains (LBL 2015). Other initiatives such as the Fair Trade movement seek to ensure a greater degree of pay stability and adequate levels of income for workers in the commodities and other exporting sectors of developing countries.

Collectively, the papers selected for this special issue progress inquiry into living wage considerations in countries where attention to the living wage, as understood in the conventional sense, has been growing. These topical issues include concepts, measurement, rationales, mechanisms and effects. All but one of the contributions was originally presented in a living wage and low pay stream organised by the editors at the 29th Conference of the Association of Industrial Relations Academics of Australia and New Zealand (AIRAANZ), held at the University of Auckland in NZ in February 2015.

The first two papers utilise NZ data to develop discussion of the conceptualisation and operationalisation of the living wage within a given context. In one sense, the notion of a ‘living wage’ is intuitively simple – a wage adequate to live on. However, the papers by King and Carr and colleagues elaborate the complexity of defining what is meant by a living wage, whilst also indicating potential individual and social benefits to a well-established living wage rate. First, King’s paper, ‘Setting the New Zealand Living Wage: Complexities and Practicalities’, shows in some detail the choices and intricacies involved in calculating what the living wage for a ‘typical’ household needs to be. These considerations relate to factors such as living costs and household expenditures, income taxes and transfers, number of incomes and family members, residential location and also available sources of data. The paper provides a uniquely-informed account of the issues and difficulties involved in arriving at a universal living wage figure, expressed in hourly pay, as part of the emergent NZ campaign. It highlights the broader politics of low income determination, notably the balance between market wages and non-market taxes and transfers in finalising net disposable income, and offers insights into the politics of campaigning itself, given that the criteria deployed had to fit the priorities established by the LWMANZ.

The focus shifts in the second article, ‘Does capability pivot about a ‘living’ wage income? An exploratory study from New Zealand’, by Carr, Parker, Arrowsmith and Watters, who consider the potential effects of a given living wage rate. The paper utilises data from an original, nation-wide employee survey to explore the relationship between income and improved quality of life, as measured by a range of work and non-work ‘capabilities’. The analysis suggests that there is a spike in the relationship between income and capabilities, and that this corresponds with the LWMANZ living wage rate. This has implications for theories of wages and poverty, as well as consequences in terms of policy which connect directly to King’s paper (see also Carr, Parker, Arrowsmith, and Watters 2016).

These two articles also reinforce the idea that defining an effective living wage means considering what is meant by ‘living’, beyond a focus on basic pay. This is developed by Ilsøe who introduces the idea of ‘living hours’ in the article, ‘From living wage to living hours – the Nordic version of the working poor’. The scheduling as well as duration of working time is essential to worker well-being and participation in family and social life, and this paper examines the impact of working-time changes for low-paid service workers in the Nordic context. The increase in ‘atypical’ and ‘unsocial’ hours since the 2008 financial and economic crisis has undermined the concept of living hours in this previously relatively stable context, with employers utilising migrants as well as young workers on fragmented working time patterns. This has implications for models of living wages predicated on standard employment contracts, given that short-time and variable hours can have multiple negative consequences for workers with dependents who need full-time regular work. Increases in hourly wage rates may not be sufficient to raise quality of life for workers in these circumstances.

Ilsøe’s paper does, however, imply that the relatively well-articulated institutional context of countries such as Denmark, Norway and Sweden, in which organised labour reaches collective agreements at various levels in a system underpinned by statutory frameworks, might offer some hope for positive regulation of these trends. The attention of the final paper by Prowse and Fells, ‘The living wage in the UK – An analysis of the General, Municipal, Boilermakers and Allied Trade Union campaign in local government’, shifts to a country where these potential safeguards and frameworks do not exist. The consideration here is how unions and living wage campaigners can achieve success in less regulated environments, and the potential implications of such campaigning. Prowse and Fells outline the emergence of in-the-main successful national union campaigns to achieve the living wage in UK local government and the extended ripple effects of co-ordinated campaigning both inside London and in four other regions. The analysis compares trade union action with social movement campaigning to emphasise the utility of political influence to achieve trade union objectives in a single campaign. The paper also implies the potential for living wage campaigns to increase workplace activism and mobilisation, which could benefit the recruitment and retention of members; the potential for such campaigns to foster inter-union collaboration and coordination; and the prospective development of wider links to social movement campaigns and political parties not traditionally linked to the labour movement. Living wage campaigns are therefore an important part of the union renewal project as well as delivering vital gains to low-paid workers.

Taken together, the papers extend the thrust of much of the emergent literature which asserts on the one hand that the notion of a living wage carries moral and economic weight, and indeed is seen by bodies such as the ILO as akin to a basic human right (e.g. ILO 2013; Berenschot International 2013; also Anker 2011), but is difficult to realise on the other, due to practical and political considerations that extend to fundamental changes in the structure of work, employee representation and the role of the state. Yet, despite these obstacles, there is a positive theme throughout our contributions. In NZ, a broad-based campaign has had some success by linking trade unions to grassroots community groups and sympathetic employers, and utilising robust analyses to promote its highly-visible living wage rate. A similar approach has achieved growing momentum in the UK, driven by coordinated but bottom-up trade union campaigns and progressive alliances. In the Nordic countries, where the regulatory framework remains relatively strong, there is potential for unions to learn from these initiatives to better address the needs of new vulnerable groups such as migrants in the low-paid service sectors. Equally, sister unions in the UK could benefit from the Nordic experience to open up the living wage campaign to broader considerations of quality of working life.

Future research needs to address a number of important issues. The first concerns the actors. The role of employers as agents in the living wage debate is potentially significant, as at pivotal times it has been ‘progressive’ employers protecting their interests from under-cutting by ‘nefarious’ employers that has furthered the cause of regulation, but this is not yet understood. The living wage also links to debate around the potential reinvention of trade unions as social campaigners and political lobbyists as well as employee representatives in the workplace, whether in a liberal or social market context. In the developing world, living wages are an increasingly important focus of international as well as local NGO and trade union campaigns that utilise sophisticated new technology to mobilise consumer pressure. Little is known about the implications of such living wage relationships and campaigns, or of the role of new social media in driving potential success in various contexts.

Second is the need to address multi-country and multi-sector considerations. Comparative research is important given the contingencies of institutions, politics and economic conditions in framing the living wage debate and in particular considerations of its efficacy. Such research would also promote mutual learning. Furthermore, understanding of the potential impact of the living wage, on employers and workers alike, would benefit from longitudinal and qualitative research that focuses on the dynamics of higher pay. In many policy circles at least, the living wage remains dominated by orthodox liberal economists with their hyper-rational models of spot markets and marginal workers. There is, as ever, a pressing need for researchers to climb into the black box.