Lisa McElherron: Why Northern Ireland needs a living wage

NICVA has recently published some important research into the benefits of introducing a minimum wage in Northern Ireland. Writing for Slugger O’Toole, NICVA’s Head of Public Affairs, Lisa McElherron makes the case for its introduction

Fifteen years ago the New Labour government introduced the National Minimum Wage (NMW). Critics vehemently argued that it would impose excessive costs on employers, cause firms to fail, and create unemployment. Today it is accepted that businesses adapted and the dire consequences predicted failed to materialise.

But while the NMW has significantly reduced extreme low pay, a full-time salary is still no guarantee of a decent income. The Living Wage is an estimate of the wage that would provide a full-time worker with a basic, but adequate, standard of living. It currently stands at £7.65 per hour, (compared to the NMW of £6.31 for people over 20 years old) a difference of £1.34. In 2012 almost one quarter (23%) of employees in Northern Ireland were paid below the Living Wage.

So what would be the impact of introducing a Living Wage across Northern Ireland? NICVA believed the living wage is desirable but we wanted to find out if it was doable. So we commissioned Oxford Economics to model the economic effects, using data from 2012, the most recent year for which all the necessary data is available.

In their most likely scenario, the Living Wage would have added £209m (less than one per cent) to the Northern Ireland wage bill. This would have led to a loss of 1,200 jobs, but boosted consumption (of £124m) would have created 2,400 jobs – a net gain of 1,200. In addition, reduced need for in-work social security payments and increased taxation revenue would have improved the public finances by £83m. There is also evidence that higher wages would increase productivity, which has been historically low in Northern Ireland. On the negative side some firms would pass higher costs on to customers, creating inflation. But the bottom line is that the Living Wage could be implemented without serious detriment to the economy.

The economic case for a Living Wage is strong and indeed the Prime Minister David Cameron, who opposed the introduction of the NMW, saying it would “send unemployment straight back up”, now describes the Living Wage as “an idea whose time has come”.

However, thought needs to be given to how it can be achieved.

Let’s be clear though, action is required; the idea that employers will voluntarily pay their staff a Living Wage when economic conditions recover is simply not credible – if that was the case there would have been no need for a statutory NMW.

The Living Wage campaign in London has targeted specific employers who are sufficiently profitable to pay their staff a Living Wage, but given the scale of low pay a more ambitious approach is surely merited.

The most direct approach is to raise the NMW to the level of the Living Wage. A gradual closing of the gap between the NMW and the Living Wage seems sensible as it would help employers to adjust and allow any adverse impacts on unemployment to be observed and addressed early on. NMW legislation is a reserved matter, but Northern Ireland could lobby for an uplift or seek to have the power devolved- just like with Corporation Tax. The idea of regional minimum wages is not unusual – US states for example can set their own minimum wage, above that of the federal government. Indeed the previous Stormont administration 1921-1972 had responsibility for Minimum Wage levels. There is an important discussion to be had as to whether there should exemptions for special cases, such as start-ups or sectors which export and so compete largely on price.

As an enormously influential purchaser of goods and services, the Northern Ireland government could lead the way. There is a debate as to the scope to include Living Wage clauses under EU procurement law. Greater London Council requires its contractors to pay their staff a Living Wage – to date without legal challenge. Others have adopted a more cautious approach. The Scottish Assembly, haven taken advice from the European Commission, urges its contractors to voluntarily pay their staff a Living Wage. Similarly, our local Department of Culture, Arts and Leisure recently persuaded some of its contractors to pay its staff the Living Wage. Whether it is through soft pressure or contracts, the Northern Ireland public sector should consider whether it has more scope to promote the Living Wage.

The Living Wage is undoubtedly desirable. This research contributes to a growing evidence base that it is also economically doable. NICVA is calling on the Northern Ireland Executive to set out its plan to reduce the proportion of employees paid below the Living Wage. To borrow a phrase, let’s make work pay.

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  • chrisjones2

    This is pie in the sky.

    The Government has no interest at all in this. Just look at its current procurement policies. Every major Government contract for example is designed to force bidders to push wages down to the lowest possible levels. If they go higher they are regarded as profligate and excluded from the bidding. Multi million pound construction contracts are being deiced on margins of 1% to 2%

    The Civil Service has no interest – they are generally paid way above the NMR even for the same types of jobs

    Who will police all this? More civil servants?

    How will you stop manipulation – eg subcontracting the work to third parties who don’t company and don’t even meet minimum standards in H&S never mind paying PAYE NIC and VAT? How do you stop a rash of sub-contracting?

    Sorry but worth as it is its a non starter

  • Accountant

    Welfare Reform (always pays to work, re-worked bedroom tax/DLA) & Scrap the NMW (and the Living Wage) = Safety net + a premium for labour that the market decides = Full employment (or close thereto), lower (economic) immigration, higher productivity, higher manufacturing/exports, more wealth, no poverty trap, less black market, better rewards for self education/betterment, fewer tax and welfare calculators/civil service non-jobs, more efficient resource allocation, lower bureaucracy/less red tape, more self-respect for “self-employed”, greater job security, lower long-term unemployment, lower alcoholism/crime/depression, stronger social cohesion………………………..

    Sorry, Minimum and Living Wagers, there’s a better model

  • Am Ghobsmacht

    They have a good living wage in Australia.
    At the same time they have an alarming amount of coverage regarding the number of manufacturing companies going belly up.
    Not to mention that ALL the car companies are folding up and they’re closing down most of the refineries.
    And as for Qantas…..

    Is it possible to have some sort of compromise?

    I mean introduce a min living wage for some industries e.g. hospitality & retail and LOWER the min wage for industries such as manufacturing & agriculture?

    The clincher being that those who take up the lesser min wage wage and work in the factories & farms are still entitled to housing benefit (?)

    That means that the gov is paying for their housing but no longer has to pay them dole as they’d be working (but they’d still be earning more than they would be on the dole anyway).

    Add to that the taxation/creation of the managers, owners and the new companies, well, that’s a bit more money in the national kitty and with these new jobs being created there’s more money to be spent in the hospitality industry (disposable income) and retail industry.

    More people are working, it partly removes the ‘benefit trap’ and puts more money into the economy.

    Sorry, it’s classic dummies guide to wreckanomics but given how clueless some of our ‘leaders’ are I might as well put in my two cents.

  • Abucs

    Not a bad idea.