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What is the living wage?

The concept of the 'living wage' has been getting plenty of coverage in the media recently, with high-profile supporters coming forward from both sides of the political divide. But what exactly is the living wage and how does it affect employers?

The living wage is part of a campaign to improve the lot of low-paid workers. The campaign was launched in 2001 by a group of parents in East London who believed that working two minimum wage jobs left no time for family life. The concept of a living wage is that it pays enough for workers to provide their families with 'the essentials of life' and to enable them 'to lead vigorous, full, human lives'.

The living wage is a benchmark figure, a guideline minimum calculated for the UK by the Centre for Research in Social Policy at LoughboroughUniversity, and for London by the Greater London Authority (which adopted the measure in 2005). It is currently set at £7.45 per hour outside the capital and £8.55 for London.

There is no obligation for employers to pay the living wage. In contrast, employers have a legal obligation to pay at least the National Minimum Wage and National Living Wage (NMW) to their workers (with a few exceptions). The NMW is set by the Government and the rate for workers aged 21 and over is currently £6.19 for all regions.

Commentators have noted that the living wage campaign is gaining ground at a time when annual income per head is falling and the wage gap between rich and poor is widening. Pay for the top 1 per cent of UK earners has risen in real terms by 117 per cent since 1986. The lowest 10 per cent of earners saw an increase of only 47 per cent over the same period. However, the introduction of the NMW in 1999 helped push earnings up by 70 per cent for the bottom 1 per cent.

Supporters claim the living wage improves productivity, recruitment and retention, as well as quality of life for workers and their families. Detractors warn that raising the cost of employment will leave fewer people with jobs and make it harder for young, unskilled workers to find work and experience.

Despite all the coverage, only around 140 employers have adopted the living wage benchmark. Two in ten UK workers, nearly five million people, are paid less than the living wage.

Acas can visit organisations to develop practical solutions to a range of issues related to pay and reward. Visit Pay and reward: how Acas can help and the Acas Training and Business Solutions area for more information.

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