How can we tackle living wages? A sustainability conversation

This is a transcript of a discussion about living wages between Schroders’ Global Head of Sustainable Investment, Andy Howard, and John Hood, Head of Communications at the UK’s Living Wage Foundation.

Living wages are rates of pay considered sufficient for the worker to afford a decent standard of living in a particular place. There are various methodologies for calculating a living wage and attempts to tackle the issue of fair pay include the Living Wage Foundation’s “real Living Wage” in the UK.

You can listen to the full conversation by clicking on the play button at the top of the page.

Andy Howard:

Hello, my name's Andy Howard. I'm the Global Head of Sustainable Investment here at Schroders. This is the first in a series with a range of organisations around the world on living wages and employment.

And I'm delighted, therefore, to be joined today by John Hood, Head of Communications at the Living Wage Foundation. The Living Wage Foundation is an organisation that's campaigned and collaborated with companies across the UK to pay living wages, and with over 11,000 companies signed up has been hugely successful in that mission over the last decade or so.

John, welcome.

So, there's a lot of terms here, whether it's minimum wages, living wages, real living wages. How do we think about the difference between those things?

John Hood:

I guess the main two terms that people will hear a lot are the “real Living Wage” that we would talk about and then maybe the National Living Wage or the Minimum Wage, which refers to the government's wage. And the fundamental differences are the National Living Wage is essentially the statutory minimum wage for over 23-year-olds. And there's minimum wages for age groups beneath that. That wage rate is based on a target of median earnings. That's how they set that. So, the Government aims to set a National Living Wage of around 66% of median earnings. Our real Living Wage is somewhat different. Our living wage is based on the cost of living.

That is everything from household bills, like energy bills, groceries, rents, to childcare, to transport, to significant costs, being able to cover things like a financial emergency like a boiler breaking down. And also, being able to afford a little bit for a rainy day. So being able to plan for the future as well.

So, our rate is calculated independently by the Living Wage Commission, which includes labour market experts, employers, unions, academics, and others. What they do is they look at a basket of goods and services that the British public has deemed necessary for a decent standard of living.

And then the Commission considers a range of different family types, and they combine that data to determine an hourly wage rate that covers these sort of everyday needs, these costs.

In terms of what the foundation, the Living Wage Foundation does, the focus of our work is to work with employers to tackle low pay and its consequences and to reduce in-work poverty as a result.

So, we work by accrediting employers that have committed to pay all workers a real Living Wage. And that includes, I think really crucially, subcontracted workers like cleaners, security guards, caterers.

But in the past couple of years, we've also started to tackle other drivers of in-work poverty and in particular insecure forms of work. So, we have a living hours program that requires employers to provide a minimum of 16 hours’ work a week, a contract that reflects hours worked, and then a minimum of four weeks’ notice period of shift patterns – because that's the other problem that we've found alongside low pay is this kind of lack of certainty of hours.

In essence, our approach has always been working with employers to explain and extol the benefits of paying a real living wage, and then to push for change there rather than lobbying government and focusing on those levers to be pulled.

Andy Howard:

And how are you finding discussions with companies at the moment? Inflation has clearly picked up, gone through the roof frankly, over the last six months or so. And when you are talking to companies today about living wages and introducing living wages within their business and within their value chain, are you finding those conversations have changed particularly as a result of the situation that we're in?

John Hood:

I think the expectation might have been that, given the incredible impact on the economy, and obviously in particular low-paid sectors as well, retail, hospitality, that it would've been trickier to accredit employers and convince them to pay the living wage. But in total honesty, we have found that the conversations have not been tricky. And I think partly the reason rather for that is that employers recognize that the living wage is not just the cost.

There are significant business benefits, and maybe we can come on to talk a bit about those, but there are benefits around retention and recruitment, which is obviously massively important with a tight labour market. But also, productivity, reduced staff absenteeism.

Andy Howard:

Are you seeing that beyond the anecdotes?

John Hood:

Most of the good data that we have is largely from the living wage network. And those employers we annually survey to determine what are the benefits of paying the living wage to workers.

One of the overwhelming benefits reported by living wage employers is their increased ability to attract people and to keep them. And it's not a surprise I don't think, when people are confident that their wages will cover living costs now and, in the future, that is an attractive proposition.

We also hear about the advantages in terms of productivity. When you remove the burden of low pay, it has an immense impact on people's physical and mental health.

And then reduced absenteeism. I think that's connected to that sort of issue of physical and mental health. Low pay at its worst really does make people ill, physically and mentally and often leads to people being unfit to work.

And then on top of that, there has been further research conducted on areas like profitability and there's also research out there that we conducted that points to the economy-wide benefits of more people being paid the living wage.

Andy Howard:

You've touched on a lot of points that we've certainly focused on, in Schroders, in the conversations that we've had.

But we're in an environment where more and more people, and it's not just over the last six months, but over many, many years, are finding it harder and harder to get by in this country, and indeed in many other countries around the world. And that to a certain degree, governments have been expected to fill that gap with in-work social welfare payments. Do you expect that over time that might become more of a requirement from governments given their inability to continue funding in-work welfare payments in many countries?

John Hood:

Yeah. I mean, I think there's a role to play for governments and business. I think one thing we've always been supportive of is a strong wage floor, strong statutory minimum wage. And I think, as you rightly said, the government has, through the National Living Wage, not to be confused with the real Living Wage, has significantly increased that Minimum Wage.

But I think Martin Lewis, the money saving expert, has made good points in this space where he said, from his perspective, he's done all he can when it comes to providing people with information to reduce their costs. I think similarly, we're getting to a point where the burden can't all fall on businesses. So there has to be a requirement, there has to be, through the Minimum Wage, there has to be a push in terms of voluntarily through a campaign like the real Living Wage, but we are going to have to see government and other actors take actions if we are talking about an 18% inflationary world, as opposed to sort of 3% we've seen through most of the history of the Living Wage campaign.

I think increasingly, if we see costs going up, we're going to have to see other actors take action if I'm honest.

Andy Howard:

You mentioned earlier, which I thought was really interesting, the idea that more recently you've seen an acceleration or an increasing number of companies coming forward, looking to set living wages, getting involved in discussions with you.

We've engaged with companies now for many years around living wages and worker pay and found in many of those industries that you mentioned, hospitality, retail, that companies in some cases have had many of the challenges that you face, they're in competitive industries. And there's a concern about how their competitiveness will be impacted. But I think certainly a real willingness and desire on the part of most companies in this country, certainly larger companies, to try and make changes, and to do that in the way that's effective and sustainable.

John Hood:

Yeah. A lot of what we find with the living wage actually in terms of challenges is frankly awareness, and a demonstration of the benefits.

Most employers I think are able to recognize and are willing to recognize the benefits of paying the living wage. The core approach taken by the Living Wage Foundation is to encourage companies to obviously work through the cost benefit analysis. Some of that is hearing from other Living Wage employers in their own sector. Some of it is seeing how employers have adapted, and the changes they've made in order to pay the living wage. And some of its examples of employers focusing on, as you say, improving the efficiency of supply chains, for example.

Andy Howard:

This is ultimately about building more sustainable businesses. This is ultimately about building companies that can be more profitable and more durable in the long run, it makes a lot of sense.

And so, as I mentioned earlier, one of the things that we have done over a number of years is engaging with companies on precisely this topic. It's an expectation that we have of companies really across different industries. And I do think that one of the things that we found particularly important is to really try and think through the cost structures, the industry dynamics. It doesn't mean that companies shouldn't be looking to transition to paying living wages if they're not already, but the process by which that happens may be nuanced and has to be thought through.

John Hood:

Yeah, definitely. And even in social care, as I say, similar to retail and hospitality, we obviously do have social care providers that are living wage employers. And over the last few years, we've had a real drive to target social care. There are some really great living wage employers within social care.  It's doable within the model and within the sector.

But as you say, our consideration for a sector like social care is there is just a dire need for an injection of public funding. The most encouraging thing for us is, absolutely as you say, a lot of business leaders, we talk to a lot of employers, will say, "Look, we do this because we think it is frankly the right thing to do," but that is obviously aided and abetted by having a really strong business case. And you guys understand that. But it's something that we've worked hard to better understand, but I think it's pretty conclusive.

There are significant benefits to paying the living wage. And as you say, I think a really important one you highlighted is the sustainability of an organization. These are organizations and employers that really think about long-term planning and really think about developing very robust and sustainable business models. And I think the living wages are a core part of that consideration.

Andy Howard:

I think it sort of goes back to that perception that there's some sort of tension between wages and profitability for many organizations, which frankly, certainly in my mind, in the short term is possibly true.

John Hood:

It would be ridiculous to suggest there wasn't a short-term consideration in terms of costs and potentially profitability. But in the long term, if you want to be able to recruit and retain talent, keep people there, keep people motivated and productive, you're going to have to pay people a decent wage relative to your competitors.

Andy Howard:

How do you see the role of asset managers? As I say, clearly as investors – we published an Engagement Blueprint earlier this year that laid out the areas that we're focusing on – is there more that organizations can do to be supportive or do you see broad-based support?

One of the things that is sometimes levelled is this idea that, "Well, we would like to do this, but our investors will be concerned or will have issues with this." Certainly, we're very much in the opposite camp. We're very supportive of companies taking that action and moving us say towards more sustainable business models.

John Hood:

It in the broadest sense, if you’re talking of financial institutions, there is huge support. I mean actually if you go back to the origins of the campaign, 21 years ago, that was obviously... it came from a few workers in East London who had identified with community organizers that they essentially weren't paid enough to live. And the target employers initially in that area, in that locality, were some of the big banks and financial institutions and they were some of the first to accredit.

And we've had fantastic support from a range of financial institutions, banks, building societies and others. Over the years, increasingly, I think there is a recognition amongst investors and investment groups that decent wages are something to really encourage within large organizations and outside of that.

I think increasingly our focus has shifted towards well, who are the organizations and individuals that can also leverage employers and be part of that persuasive coalition that can advocate the payment of the living wage? I think we’re in a much stronger position with investors and with investment organizations, to encourage them to push employers to consider the living wage.

You know it's actually thinking about investment in terms of things like procurement and local authorities, and how they invest. That's obviously a slightly different world, but there's lots of power there to affect change and to drive living wage take up as well. And again, we're seeing very positive moves in the public sphere in the third sector, as well as the private sector.

Andy Howard:

I think that question about how do we think about this in a global context is important. Certainly, when we talk about living wages, we don't mean it simply here in the UK. We mean it around the world. And it's really interesting to see your organization starting to look at multinationals and how we think about companies that employ a large number of people elsewhere.

Certainly, industries have become much more global and, if you like, the low-paid work has moved to other parts of the world.

John Hood:

Yeah, absolutely. It’s a growing area of interest for us. It's an increasing part of our work because as you say, we don't want to solve the problem of in-work poverty in the UK only for it to be transferred to other countries.

Andy Howard:

We're now at a point to say where one in 13 employees in the UK now work for living wage employers, thanks to the success and the growth that we've seen with the Living Wage Foundation over the last decade or so.

John Hood:

Absolutely. Yeah, for sure. I mean, we are really pleased with the campaign. We feel like it's made a huge impact. I think it's, by our calculation, it was something like over 300,000 people directly impacted over the 20 years and close to 2 billion pounds in extra wages that have gone into workers’ pockets. But I mean, as you say, a very long way to go yet.

Andy Howard:

Well, John, thank you very much indeed for your time today. It's been fascinating talking to you and the journey that the Living Wage Foundation has been on. Thank you very much indeed for your thoughts and your perspectives today. Extremely interesting.

John Hood:

Thanks for having me.

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