What's a good wage?

On 1st April 2019 the National Living Wage increased by the highest rate in its history. Having risen by nearly 5%, it now stands at £8.21 per hour. The government estimates that full-time workers earning the living wage will be more than £2,750 better off compared to 2015.

That’s an impressive increase. But is it enough? In the four years since its introduction, the National Living Wage has been dogged by criticism that it is still too low. So much so that an alternative, higher Living Wage is promoted by independent think tank Resolution Foundation – one that we at OneFamily have pledged to pay our workers.

Why isn’t the National Living Wage enough? What is a good wage?

What is the National Minimum Wage?

Let’s start with some context. The National Living Wage is really the National Minimum Wage under another name. The legal minimum an employer is permitted to pay its employees.

The minimum wage operates as a sliding scale depending on your age. Once you reach 25, the National Living Wage kicks in.

25+ 21 - 24 18 - 20 Under 18
£8.21 £7.70 £6.15 £4.35

The concept of a ‘living wage’ is that it’s more than the bare minimum needed to survive. It’s the least you need to achieve what is generally considered to be a decent standard of living.

Why do 18-25s not quality for a living wage? Because many are still supported by their parents at this age. And most have fewer responsibilities, meaning they need less money. That’s the theory, anyway.

What is the Living Wage?

The Living Wage is a voluntary minimum distinct from the government National Living Wage. It’s calculated annually by the Resolution Foundation. Currently it stands at £9 per hour outside of London, £10.55 in London.

The government’s National Living Wage is designed to reach 60% of median earnings by 2020, with the per-hour minimum derived from that target. According to some measures, anything below 60% of the median is considered to be poverty.

The Living Wage, on the other hand, is based on calculation of what people really need to achieve a decent standard of living. That includes things like accommodation, travel, healthy food and little extras like birthday presents. A level of pay that enables people to “do more than simply exist.”

The Living Wage campaign predates the National Living Wage by 15 years. At the time, the minimum wage was just £3.70. The movement originally started with hospital staff in East London, before spreading to local schools and City firms. In 2004, then Mayor of London Ken Livingstone lent his support, which has been upheld by his successors.

Who supports the Living Wage?

Unlike the National Living Wage, which is compulsory by law, the Living Wage is voluntary. But support is growing.

Over a third of FTSE100 companies are committed to paying the Living Wage, along with nearly 5,000 employers across the country. Research shows that workers are paid an extra £200m per year because of commitments like these.

Big name supporters include IKEA, ITV, Chelsea FC, British Gas, Lloyds, RBS and OneFamily, of course. Adam Hill, founder of advertising agency Designate, explained why they support the National Living Wage campaign.

"Brighton is city of diversity and creativity, the very things that make our business thrive. However, the cost of living in this vibrant location is high. We support the living wage campaign to ensure our people can focus on enjoying their work and being creative without the constraints of low pay."

Wages in the UK

Why do we need a Living Wage at all? Are earnings really so bad in the UK that we need a government-mandated living wage? Worse, that the legal minimum isn’t enough?

On average, people earned £569 per week in the UK in 2018. That makes the average UK salary £29,588 per annum.

median gross weekly earnings, 2018, UK

What about with inflation?

Inflation is a source of pressure on the purchasing power of wages. Although wages have grown over the last few years (see table above), when inflation is taken into account, they are still lower than in 2008, just before the financial crash.

weekly earnings growth, adjusted for inflation, 2018, UK
And with a raft of household bills rising in 2019 – including a £117 rise in the energy price cap – life keeps getting more expensive, and wages aren’t keeping pace.

Wage growth in the UK

The good news is that recent wage growth has actually been strongest amongst low earners, thanks to the National Living Wage. For all its faults – and perhaps partially due to the parallel enthusiasm for the Living Wage – the proportion of jobs considered low-paid in the UK is at its lowest point since records began.[1]

Proportion of high and low-page jobs, 2018, UK
But the highest earners still take home nearly five times as much as the lowest paid.

distribution of earnings, every fifth percentile, uk, 2018
And high paying jobs are unevenly distributed across the country.

 

proportion of low, middle and high paid jobs by region, 2018, uk
That said, if you take cost of living into account, much of those high earnings will be eaten into by correspondingly higher bills – this is why the Living Wage is higher in London.

In a ranking of 17 UK cities according to the average proportion of income residents spend on rent, the top seven cities were all in the south. London topped the poll at 37.08%, with Brighton not far behind, at 32.68%. In a survey of property prices – strongly correlated with cost of living – the most expensive property outside of London was all in the south.

So although the greatest riches are to be had in the south, you also need to earn more to get by. In our own ‘best places to live and work in the UK’ ranking, 9 of the top 10 cities were north of London.

All of which brings us back to the question we started with: what’s a good wage? The answer is… it’s complicated. The Living Wage at least establishes a minimum for living, rather than surviving. And that’s the least you should expect.

We’re committed to paying a good wage. Find out more about working for OneFamily or join us on social media to learn more about making the most of your money.

[1] “Low paid” is defined as two-thirds of median per-hour earnings, in keeping with the OECD definition