Responsible Investment

Living Wage: a UK perspective

03/05/2015

Elly Irving

ESG analyst

Schroders

 

The living wage is gaining momentum in the UK. The number of companies committed to paying their workers the living wage has doubled during 2014 and now numbers 400. The living wage topic has relevance across the globe; however, in this note we focus on the UK. We assess the associated costs and benefits of paying a living wage, which sectors have the most exposure to this issue and the impact it has on margins.

Political pressure puts the UK living wage on the agenda

There are several reasons why the living wage debate is gaining momentum in the UK, and political pressure is one of them. London’s mayor, Boris Johnson, has stated that he wants the living wage to become the norm across the city.

In addition, there has been a greater focus on income inequality in the media. Shareholders are increasingly using voting rights to highlight employee-related issues such as workforce diversity, and the living wage could be the next area matter to grab engaged shareholders’ attention.

Finally, in a global context there is rising awareness of living wages. In the US, several major retailers including Wal-Mart and T.J. Maxx have committed to increasing wages ahead of potential legislation that would take the federal minimum wage from $7.25 to $10.10 an hour. In emerging markets, there has been a significant increase in the minimum wage in both Bangladesh and Cambodia in response to large scale employee strikes. It should be noted that many UK companies sourcing from emerging markets have a commitment to paying a living wage along their supply chain, however, very few companies are able to demonstrate that this has been achieved.

The current living wage in the UK

Globally, there are many different definitions for a living wage; in general it should enable the earner to afford shelter, food, clothing, transport, healthcare and basic necessities.

In the UK there are two official living wage levels, which are re-calculated annually and take into account issues such as housing costs, council tax and a regular shopping basket.

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