From the TUC

Living Wage – UK vs US approach

08 Jul 2014, by in Labour market

You my be surprised to find that there is agreement between the following people – David Cameron, Winston Churchill, Boris Johnson, Ed Miliband, Pope Leo XIII, Franklin Delano Roosevelt and Adam Smith – yet all of them have spoken of the need for a living wage.  We need to see the UK living wage help many more workers in the coming period.

Modern living wage campaigns really start in the US in the 1990s and the UK (2001). There are great similarities between the campaigns in our two countries, since both have been driven from the grass-roots,  led by civil-society bodies including trade unions and churches.  

But there are also significant differences. First, one slogan of the US living wage movement is that “one size does not fit all”. They believe in basing the calculation of the living wage at a local level – be it state or municipality. Second, their campaigns aim to secure  local legislation.

In contrast, the key players in the UK have agreed that there should be just two living wages – £8.80 in London and, since 2011,  £7.65 in the rest of the UK. In addition, the UK campaign focuses as much on persuasion to do the right thing as it does on coercion.

There are also obvious significant differences between the UK and the US in terms of the policy environment. Put bluntly, the UK has  a statutory minimum wage that rises regularly and the living wage approach is voluntary, whilst the US minimum wage rises rarely and the living wage approach is statutory (but this only applies in a minority of locations).

These things matter. First, the US Federal Minimum Wage  has been left so low that there is a lot of room for employers to pay more. It was last increased in 2009 and is currently $7.25 per hour, which equates to £4.20 at today’s exchange rate. The youth rate is $4.25 and in the tipping indsutries the rate is just $2.13. If you are visiting the US, please remember that waiting staff have to rely on tips to live.

There are 50 States in the US, of which 21 have adopted a statutory floor that is above the federal minimum wage. The addition is slight in some states – just 25 cents in Maine, Missouri and New Mexico, for example. However, there have been significant gains in some states, with Washington setting the highest rate at $9.32 (£5.45) -a full £1.25 above the federal minimum, followed by Oregon at £9.10 (£5.32) and California at $9.00  (£5.26). 

 There are also about 120 city and municipality living wage ordinances. Once again, these vary between adding a few extra cents to a much more generous hike at the top end. At the moment, the legislation in Berkeley stands out, with a living wage of $13.71 (£8.01).

Unfortunately President Obama has seen his efforts to raise the federal minimum wage blocked. In response, he has encouraged states and municipalities to do more with their own legislation. One outcome has been that  has agreed that it will raise its  minimum wage to $11 per hour (£6.43) by 2017. Meanwhile, at the sub-state level, the City of Seattle has been most ambitious, with plans to phase in a rate of $15.00 ($8.77) by 2017, although this legislation is currently subject to challenge.

Reading though the US rates, it is clear that UK National Minimum Wage is already delivering more than most of the US state and municipal legislation can achieve, and that our living wage rates are also higher. 

Perhaps unsurprisingly, the greatest gains in the US have been made in the better off areas. The project has been very worthwhile in terms of the number of people gaining, but it has not  helped the poorer states at all.

We need to stick to our two living wage rates here, not just to avoid leaving out the poor areas, but also to avoid reigniting the regional pay debate. In addition, it is far easier to get companies to sign up to a simple system with two rates than it would be to get buy-in to a complex web of dozens of local rates.

The living wage needs a big push in the UK in the coming period, with government, unions and smart employers all playing their part. The Living Wage Foundation reports that there has been rapid  progress this year, but the rate of sign-up needs to shift into an even higher gear.

The UK has a low pay, low earnings growth problem. Developing the minimum wage and spreading the living wage must be part of the solution, as must be our core work of trade union bargaining. In addition, the TUC proposes that there should be special initiatives in some sectors where low pay has become entrenched, raising both earnings and productivity. 

One Response to Living Wage – UK vs US approach

  1. Emily
    Jul 9th 2014, 5:05 pm

    lower rent, housing ,
    affordable locally grown produce-food, sustainable and ‘green’ farming
    equal pay for equal work-global wage equality

    would end poverty, hunger?

    But greedy people don’t feel any guilt to accept luxury, when someone else is dying from hunger (without the fault of their own)