As the mayor announces a rise in London’s Living Wage, does it make economic sense?

Boris Johnson

Since its introduction in 2005 an estimated 11,500 workers have benefited from the London Living Wage rate. Over a full year, this year’s rise will put around £4.5m into the pockets of lower-paid Londoners. Recent research from Queen Mary University showed that introducing the London Living Wage improves staff retention rates for firms and more than half of employees feel happier about their place of work. By building motivated, dedicated workforces it helps businesses to boost the bottom line and ensures that hard working people can enjoy a decent standard of living. Despite challenging economic times, it’s clear that more employers are waking up to the benefits that paying the Living Wage delivers. From banks and insurance companies, to charities and leading universities, there are now close to 200 employers in London who are supporting the campaign to pay the Living Wage.

Boris Johnson is the mayor of London.

Sam Bowman

Voluntary adoption of the Living Wage by businesses is great. But if it really did increase worker productivity, they wouldn’t need the government to tell them to do it. The only thing worse than having a low-paid job is having no job at all. Raising the minimum wage to the living wage level would destroy jobs for exactly the people we want to help. The empirical data is clear: putting a floor on the price of labour creates unemployment, especially among young and unskilled workers. Instead, we should stop taxing the poor so much. The pre-tax earnings of a worker on the minimum wage (£12,875 per annum) are almost as high as the post-tax earnings of a worker on the Living Wage (£13,069.32 per annum). The surprising fact is that we could give nearly everyone a living wage without creating any unemployment. All we need to do is stop taxing the poor.

Sam Bowman is policy director at the Adam Smith Institute.