Saturday, 10 November 2012

Why the living wage campaign is wrong

The main argument for the living wage is that it lifts people out of benefits. Currently there are thousands of people in the UK who work hard and have full time jobs yet receive housing benefit and other state support since their wages are not big enough to make ends meet at the end of the month. In effect, this shifts the burden from employers (who pay wages and through the work of their employees make profits) to the tax payer. The argument of the living wage campaign is that this is wrong.

However, there is another argument that should make us think twice before we introduce the living wage. The income differential between employees is a product of the type of work they do and their productivity. The living wage would force employers to reduce the income differential substantially between those employees who do different jobs in their company.

Effectively, this would distort the incentives for pre-employment education, training and skills. With the living wage, there would be no difference anymore between somebody who cleans the office and somebody who answers the phones. To pretend that both types of work are of equal value is simply not true. Though both should command our respect for hard work, reducing the income differential between jobs in essence signals to young people that further and higher education does not pay.

The danger would be that education does not look attractive anymore in a society where wages are the same for everyone.


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