Tuesday, 7 July 2015

How to Pay for a Living Wage?

Nat O'Connor: A single person working full-time needs to earn €11.50 per hour to afford a minimum decent standard of living. This is a rise in the cost of living of 5 cent since this time last year.

Full details of this year's figure are available on LivingWage.ie. In brief, while some costs have gone down, and the USC changes have reduced taxes on lower earners, the large increase in rents has pushed up the average cost of living for low income workers.

Many commentators and analysts agree that anyone working full-time (39 hours/week) should be able to afford to meet their basic set of needs, but the question arises: how can we afford it? In particular, how can struggling small businesses afford it?

In the UK, KMPG have just published a study promoting the Living Wage, arguing that paying it would lift six million workers out of poverty (Mirror). KPMG calculate that a mandatory Living Wage would lead to a 1.5 billion GBP boost to the Treasury from tax revenue, which could be used to off-set the cost to small businesses.

The boost to domestic demand, plus the rise in taxes, is one example of how a Living Wage can be afforded - calculated on the level of the macroeconomy. But that may not convince individual SME employers who are struggling to meet their costs.

There are other possibilities. Tax cuts have been suggested by some as a way of putting more money in people's pockets. While the USC changes did indeed affect the calculation of this year's Living Wage, the problem with this approach is that it focuses only on cash - not on meeting people's needs. With tax cuts come service reductions, and that puts more pressure on the income of people, especially those on low incomes who rely all the more on tax-funded public services.

Another option is to examine the list of goods and services that make up the modest set of necessities. Measures to contrain energy costs, lower food costs, cap rent, limit the rise of public transport costs, etc. are all within the remit of public policy. Everything adds up, and even minor measures to limit the cost of living can make a difference, which would result in a lower Living Wage.

Yet another option is to examine the billions of state subsidies and supports to enterprise, and also contracts for the purchase of goods and servicves from the private and voluntary sectors. Social clauses (permited under EU Directives) are another way to ensure that a Living Wage is paid by those in receipt of significant amounts of public money.

Public bodies too should take the lead and make sure that a Living Wage is paid, including to out-sourced contract workers (like cleaners) as well as to their own employees. While SMEs may be struggling, most staff in larger companies earn more than €11.50 per hour and these companies can afford it.

Finally, the Living Wage represents the kind of society we want. We are always going to need low skill workers, from cleaners and security guards, to people working in shops and (increasingly) home help. Our society will be shaped by the quality of life we choose to give to full-time workers. The Living Wage should be the target for rises in the Minimum Wage, with supports put in place for small businesses and also other policy action to reduce the cost of living. The alternative is a grossly unfair, unequal society.

Nat O'Connor is former Director of TASC, a member of TASC's Economists Network and Lecturer in Public Policy and Public Management at Ulster University. He is also a member of the Living Wage Technical Group.

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