A High Wage Economy? Don’t Be Fooled

7th February 2016 / United Kingdom

There’s recently been a lot of talk about the UK’s supposedly ‘high-wage economy’. But is this based on fact? Here are four reasons to be doubtful.

  1. UK companies still don’t pay the legal minimum wage

Today, the Department for Business, Innovation and Skills has ‘named and shamed’ another 92 companies that have failed to pay their staff the National Minimum Wage.

Of the £1.9 million total underpayment, the worst offender was London’s TSS (Total Security Services) Limited, which failed to pay more than £1.7 million to 2,519 employees – an average underpayment of £691 for each of the 2,519 employees affected.

The BIS press release says that “Since the scheme was introduced in October 2013, 490 employers have been named and shamed, with total arrears of over £3,000,000 and total penalties of over £1,100,000”. It’s great to see the government naming and shaming those organisations that are failing to pay the National Living Wage, but there’s a much bigger scandal that remains unaddressed.

  1. And the minimum wage falls way below what people need to live off anyway

Recently, there’s been a worrying fall in the proportion of jobs available that are secure and pay the Living Wage – despite growing employment overall. So when we hear good news stories in terms of job creation – we need to be questioning the quality of the jobs being created.

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There is a huge disparity between the government’s National Minimum Wage and the hourly rate calculated by the independent Living Wage Foundation as the minimum hourly pay that is needed to allow a full-time worker to cover the basic costs of living in the UK.

An apprentice working 35 hours per week in the UK and paid the National Minimum Wage will earn just £6,006 per year. This figure falls way short of the Living Wage Foundation’s calculation that a worker needs to earn £15,015 to achieve an adequate standard of living in the UK, and £17,108 if living in London.

The Government’s much publicised “National Living Wage”, which will be introduced on 1 April 2016, has been described by the Living Wage Foundation as “not a Living Wage”.

  1. Young people are getting the rawest deal

The Government’s announcement of a two tier welfare and wage structure last year is set to penalise young people both in and out of work. The changes remove financial support for 18–21 year olds to cover housing costs independently if they become unemployed or are on a low income – a move set to see youth homeless soar. This is as well as bringing in a higher minimum wage that only applies to employees aged 25 and over.

And there’s another ongoing in-work poverty scandal that involves young people. Apprentices aged 16–18, and those aged 19 or over who are in their first year of work, are entitled to a legal minimum wage of just £3.30.

Despite this, companies have been breaking these rules in plain site.According to a Government report, in 2014 almost a quarter of all 16–18 year old apprentices were paid less than the statutory national minimum wage.

Meanwhile, the Government’s “National Living Wage” will only apply to those workers aged over 25 when it is introduced.

  1. Many people are no longer considered ‘unemployed’, but they don’t actually have enough contracted hours to get by

Recent news that unemployment levels have fallen is welcome. But these figures hide the vast numbers of people that are currently employed, but are not contracted with enough hours to get by on.

We know this because although employment has recovered to pre-crisis levels, underemployment – when people are in work part time, with fewer hours than they need – rose rapidly during the recession and is still high. There are 3.3 million people in work who are contracted to work fewer hours than they need to earn enough to live off. That’s on top of the 700,000 people employed on zero-hour contracts.

Before flouting rhetoric of a ‘wage-led’ recovery, politicians need to focus on improving the quality of jobs – and paying wages that staff can afford to live on, is a key part of this.

While it’s easy to imagine businesses resisting interventions designed to address low-pay and job insecurity, many examples of responsible businesses acting in the interests of their staff already exist, such as the recent wave of employers pledging to pay staff at least the research-based Living Wage (including IKEA, Lidl and Aldi) and those doing away with zero-hours contracts.

By Alice Martin new economics.orgAs if people and the planet mattered

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