The REAL LIVING WAGE not only changes lives it makes our businesses better. Here’s why:

The UK is home to three million children deemed to be in poverty, 70% of these come from working families. Theresa May declares every week that “work is the best route out of poverty”, and she’s absolutely right. But thousands of people in poverty do work, so our route needs improvements.

by Benjamin Stein

Currently, those aged 25 and above are entitled to the National Living Wage (NLW) of £8.21 an hour. A study by the Child Poverty Action Group found that two-parent-families working full-time on the NLW, are on average, £200 a month short of being able to afford basic necessities. For lone parents, it’s £220 a month.

These people are making positive contributions toward our country, they shouldn’t be squeezed into destitution. The Independent have reported that nearly four million people are using food banks annually, many of whom are workers. We can all agree on this, a successful economy doesn’t include working-poverty. 

So, what can be done?

One solution could be the introduction of a Real Living Wage (RLW). The RLW guarantees workers a wage that covers the basic costs of living. This is calculated by the Resolution Foundation, who work with the public to decide what goods and services everybody should be able to afford. It then calculates the wage that achieves this. Currently, this is £9 an hour in the UK and £10.55 in London.

Some of RLW’s potential benefits need little explanation. For the 3.7 million workers currently below the poverty line, pulling them toward financial security is incentive enough. But there’s more. Trust for London found that RLW workplaces have better psychological well-being than their non-RLW counterparts and 32% of respondents believed that RLW had led to significant improvements in their family life.

There are macro-economic advantages too. Wills and Linneker (2012) found that: “If all low-paid Londoners were paid a living wage, this could save the government £823 million a year by increasing the tax base and reducing benefit spending”. Not bad, right?

But what about business?

The natural reaction to the RLW is that it’s a wonderful idea, but places unrealistic expectations upon private sector businesses to foot the bill. After all, its implementation can result, in the short-term, in increased expenditure and reduced profit margins. It can also create cash-flow pressures, which could lead to job losses or fewer hours for staff.

But that is only if the opportunity is not taken to re-evaluate where the business could become more productive, profitable and cost-efficient in the long-term. Should this be achieved, there are rewards to enjoy. Five of RLW’s benefits to business are:

(1) Reducing staff-turnover: Wills and Linneker (2012) found that organisations implementing the RLW in London experienced a 25% reduction in average staff-turnover. This allows for huge recruitment savings.

(2)  Increasing employee morale/loyalty: In the same study, Wills and Linneker found that 54% of workers felt more positive about their workplace after RLW was introduced. This can have profound impacts on employee performance.

(3)   Reducing absenteeism: UK employees take on average 9.1 days off per year, it’s estimated that this costs our businesses £29 billion annually. After introducing RLW, London employers have reported a drop of absenteeism by around 25%. Imagine the savings in hospitality and retail!

(4)  Productivity improvements: The evidence around this is less clear-cut, but there are case-studies that do illustrate productivity increases. Research by the Equality and Human Rights Commission (2014) found notable evidence for this within UK cleaning firms. Motivated staff are more likely to be productive.

(5)  Reputational benefits: Being an ethical employer is a huge asset in the marketplace. A study by Oxford Economics found that 52% of shoppers were willing to pay higher prices if staff were paid the RLW.

So as tech company Strillobyte illustrate, “you ultimately generate more cost savings and revenue, by simply being a good employer”.

A human AND business necessity?

Nobody is comfortable with the idea of a person working full-time and remaining in poverty: it goes completely against what we believe to be fair. The Real Living Wage provides a real way of preventing this.

Many incredibly successful companies are onboard too, there’s Ikea, Aviva and Barclays to name just a few. In Devon, we have the likes of CATERed, Delt Shared Services and Union Glass Centres. Social enterprises are leading the way however: almost three quarters pay their staff the RLW.

So, it can be done! Apocalyptic fears surrounded the introduction of the minimum wage in 1998 and that proved a resounding success: the Real Living Wage will silence these doubts too. From a human standpoint, the RLW is an absolute necessity. And in an era that demands a more productive economy, we can say that from a business perspective, it makes perfect sense.

This article was written by Benjamin Stein. View the original on his blog.