Background of the London Living Wage - Essay Example

London Living Wage (LLW A case study of the banking sector Executive summary The concept of living wage has raised several concerns in the political, social and also economic world. The living wage can be defined as the wage rate sufficient to provide and meet the necessities and other social amenities that are essential at an acceptable standard of living (Howes, 2005). In London, the first campaign of living wage which was known as London Living Wage, was launched in 2001 by London citizens (Pollin, 2005). They included; schools, faith organizations, community groups and trade union branches. They argued that low income had effects on the community as a whole. This is because it had considerable impact on family life, health, civility, parenting and academic achievement. Since the implementation of the London Living Wage campaign in 2001, majority of the lowly paid employees have advocated for them to be paid the living wage. The living wage is not only of benefit to the employees, but also to the employers. In this study, we considered the impact of London Living Wage on the banking sector. Employers in this sector benefit by; improvement in the employees’ morale, recruitment and retention of workers, increase the overall productivity of the firm, workers motivation and also on the goodwill of the firm as a whole. Employees will also benefit through better working conditions and improved living standards and life styles. This has enabled them manage their bills accurately, pay for tuition and further training and have a better family life. Background of the London Living Wage Living wage can be defined as, a wage rate sufficient to provide and meet the necessities and other social amenities that are essential, at an acceptable standard of living. There is a distinction between living wage and minimum wage. Minimum wage is defined as a wage determined by the legal authority which employers cannot pay their employees below it (Waltman, 2008). On the other hand, the London Living Wage is the threshold at which individuals can live above the poverty line, and they can have sufficient net to provide and maintain a quality life (Luce, 2005). The first campaign of LLW was launched in 2001 by London citizens. They included; schools, faith organizations, community groups and trade union branches. They argued that low income had effects on the community as a whole. This is because it had considerable impact on family life, health, civility, parenting and academic achievement. The main aim of the campaign was to establish a living wage that was distinct from the already existing legal obligatory minimum wage. They argued that the minimum wage did not conform to their family and individual needs of those persons who earned the lowest level. The campaign activities included demonstrations and rallies (Robinson, 2004). For example, the workers of HSBC protested over cleaner’s working conditions at the bank. Since then, the campaign has spread to many sectors of the economy, that is, it has distributed from hospitals, to universities, to finance house of Canary Wharf, to shops and local government. The campaign has also procured agreement that all employment opportunities at the Olympics will be a living wage. This has been so as to ensure that the massive investment opportunities at the Olympics reach to at least some of London’s lowly paid individuals. Rationale for introduction of the LLW The London Living Wage was introduced so as to provide an authentic margin above the National Minimum Wage to prevent the Londoners from falling into the poverty brackets. Its main objective was to protect human dignity in the work place. It stated that the work place should enable employees to achieve a decent standard of living (D.Aaronson, 2001). That is, the people should not only just have enough income so as to survive (the minimum wage standard) but also have sufficient income that will enable them to have a basic level of enjoyment, freedom and a choice in their lives. The table below shows the margin between the living wage and the minimum wage that has been achieved in London since the implementation of London Living Wage. National Minimum Wage London Living Wage 2003 4.50 6.40 2004 4.85 6.59 2005 5.05 6.70 2006 5.35 7.05 2007 5.52 7.20 2008 5.73 7.45 2009 5.80 7.60 2010 5.93 7.85 2011/12 6.08 8.30 Also, the rising cost of living had a prejudicial impact on the quality of life of thousands of employees in London. The pressure on income majorly affected those individuals or employees whose income was at the bottom end of the income scale (D.Fairris, 2005). Therefore, there was a need to impose a wage rate that would ensure that the rising cost of living was catered for and that there were no employees falling into the brackets of the working poor. Impact of LLW on the banking sector of the economy The main aim of this study is, accurately document a description of how the implementation of London Living Wage has impacted on Londoners. To be more specific, the focus will be on how it has it has impacted on the banking sector of the economy. There is sufficient evidence that employers in the banking sector have benefited considerably across a wide range of areas after implementation of the LLW. The most significant impact has been felt in improvement in the employees’ morale, recruitment and retention, productivity, motivation and also on the goodwill of the firm as a whole. That is, the employers have reputational effects by being an ethical employer and also for being socially responsible (Pollin, 2005). For example, in 2004, Barclays Bank in London indicated adoption of the living wage has enabled them to attract higher quality employees and there has been an improvement in the cleaning standards (Anon., 2005). Indeed, this new policy has resorted in dramatic decline in absenteeism and employee turnover from 30 per cent to 4 per cent. The graph below summarizes the views of employers surveyed concerning the benefits that firms in the banking sector experience when they incorporate LLW. So as, to understand better the drivers and nature of these benefits experienced by employers in the banking sector, each of the benefit will be discussed in detail. Recruitment and retention of staff This is the area that LLW has made a significant impact. This is because; since most of the firms implemented this wage there have been substantial effects in some areas. These are; a) Significant low rates of staff turnover b) The employees have more incentives to continue working in these institutions. c) The firms have also experienced substantial decrease in costs on recruitment and induction training. d) Finally, there have been increased tenure of employees and continuity of the workforce (Howes, 2005). Views of LLW Employers: Headline benefits of LLW implementation Absenteeism and sick leaves Another important effect of LLW on the banking sector is that employers have experienced lower rate of absenteeism and sick leave among the employees especially those from the cleaning department (LUCE, 2005). Productivity More than 80 per cent of the employers consider that the LLW has heightened the quality of work done by their staff. They also believe that, after receiving the LLW, there has been widespread effective and efficient work re-organization (Anon., 2005). Worker morale and motivation This is the area that all employers reported some positive impact on the functioning of their organisation. The LLW has significantly promoted and boosted employee’s motivation and morale (Williams, 2009). Reputational benefits Almost 70 per cent of the employers believed that the Living Wage has altered the consumer’s perception of their organizations. This has had significant effects on the firm’s corporate social responsibility image and reputation (Robinson, 2004). Employee benefits All employees in this sector have reported that the living wage has not only made them more comfortable at their work place, but have also improved their living standards. This has enabled them accurately manage their bills, pay for tuition and further training and have a better family life. Implementing change in the workplace A majority of the employees felt that the imposition of the living wage in their organization made them more willing to adopt change and implement changes in their work places. It also enabled them to call for fewer yielding to effect change. Even though, there exists benefits on implementing the LLW, there are also several barriers that organizations face in deciding whether to incorporate the Living Wage. These include: a) An increase in wage costs which raises their overall costs b) There can also be negative effects on profits due to increasing costs. c) It can be difficult to maintain revenue equivalence Conclusion There is significant evidence that the firms in the banking sector have had substantial monetary and non-monetary benefits after the implementation of the London Living Wage (Willis, 2011). Although some firms have indicated that there are non-trivial implementation costs, the lack of any evidence of negative impacts on a firm’s performance suggests that there is a positive net benefit of LLW implementation for any firm in the banking sector. Raising wages for the lowly paid workers reduces costly employee turnover and in turn increases productivity. Under living wage policies, employers can enjoy these benefits of paying higher wages without being placed at a competitive disadvantage, especially when all employers in their field are required to do the same (Waltman, 2008). Raising wages also puts money in the hands of customers, boosting demand for banking services. However, there exist bottlenecks that hinder firms from paying living wages. These include; increase in wage costs that raise firm’s overall costs, negative effects on profits due to increasing costs and finally difficulty in maintaining revenue uniformity among the employees. 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