WAG’s policies on area regeneration, child poverty, public service provision, equality and workforce development all help Wales move closer towards the vision set out in the One Wales coalition agreement. If introduced, a Living Wage policy has the potential to make a further contribution towards many of these policy areas and the overall One Wales agenda.
While the evidence in the United States and the UK suggest potential benefits to the introduction of Living Wage laws, results are mixed on the likely impact on employment and hours worked. However, most of the studies which have looked at the effect Living Wage and Minimum Wage policies were set against a backdrop of relatively benign economic conditions.
The world has recently changed quite dramatically and we are currently within the grip of a global recession. In these changed circumstances, increasing labour costs might have more serious implications for business performance and the employment of low-skilled workers than they have in the past.
From this perspective it might be wise to exercise caution in the pursuit of Living Wage policies. Either in terms of delaying their introduction or by seeking a gradual approach in which the effects of the policy can be more carefully evaluated. Most research suggests that in benign economic conditions the negative impacts of Living Wage and Minimum Wage policies are likely to be reduced (depending on the competitiveness of labour markets).
The scale of impact from a Living Wage policy will depend heavily on its coverage and whether it extends beyond public sector employees and employees delivering public sector contracts. The most significant areas of impact are likely to be realised in improved wages among low paid workers and marginal improvements in relatively deprived communities. For many other areas it is difficult to see how impacts are likely to arise, for example inactivity rates are unlikely to be affected.
In isolation, Living Wage policies are unlikely to provide an effective means of tackling poverty. Even under more ambitious simulations (presented in this report) the proportion of workers in low income households remains high. Simulations also demonstrate the relative bluntness of Living Wage policies as a means to tackle poverty. Benefits will accrue among households with more than one person working and where at least one worker already earns above the National Minimum Wage.
Most labour market indicators indicate the recession initially hit Wales harder than Great Britain as a whole. The dramatic deterioration in Wales’ recent position is a cause for concern accounting for nearly one third of the rise in unemployment across Great Britain in the three months to August 2009.
Public sector finances have been strained by falling tax revenues coupled with demand for support across a range of industries struggling in the face of the downturn. Employee costs account for a large share of operating budgets across most public sector services.
In these changed circumstances, this report sets out serious implications for businesses of increasing labour costs. There are also serious implications for the public sector in increasing labour costs in the current environment. It is likely that constraints facing public sector budgets will require careful consideration of employee costs over the short to medium term.