09
May
12

The Living Wage needs to be a central plank of Labour’s economic narrative- Darrell Goodliffe

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Labour needs a strong and coherent economic narrative which tells a story of a new economy, one built out of the ashes of austerity and the financial crash. Of course, it is not enough to string pretty words together, we must practically show how we will do this through eye-catching policies which encapsulate and embody the vision we want to put to the electorate. If you look at the French election, Francois Hollande did this well by pushing the 75% top-rate of tax on earnings over  1 million euros. This embodied his insistence that the rich shoulder the burden of rebuilding France’s shattered national economy.

Ed Miliband has already expressed the view that it is the toiling mass of people who are society’s real wealth creators and therefore they are the ones who should be most rewarded. Ed is correct in this point of view but he has yet to substantiate it with a policy that makes his point in a clear and unequivocal way. However, the living wage fits the bill perfectly, coupled with real controls on top incomes it would send a clear signal that Ed is prepared to back his fine words with equally as fine deeds.

We will be assailed with all the traditional arguments against, ‘it will lead to unemployment, it would be bad for business’, etc, etc. However, put lightly, these arguments are economic hokum. J K Galbraith deals with some of the arguments here in a US context:

Would prices go up? Some would. But rich people can afford it — and workers would have extra income to pay the higher prices, so most of them would come out ahead. Women in particular would benefit because they tend to work for lower wages. With more family income, some people would choose to retire, go back to school, or have children, making it easier for others who need jobs to find them. Working families would have more time for community life, including politics; Americans would start to reclaim the middle-class political organization that they once had. Because payroll- and income-tax revenues would rise, the federal deficit would come down. Social Security worries would fade.

Not only that, but households would be able to, slowly but surely be able to make headway into the personal debt mountain which blights our economy; here Ed will need to offer other support, like the extension of Debt Relief Orders and action against high prices (something he has already muted). However, a living wage would be a huge boost to struggling households and therefore to our flagging economy.

Up to this point, Ed has only mooted a ‘voluntary’ living wage (in return for which companies would receive tax incentives) however, this is pointless and misguided. If it is voluntary it would introduce two-tier wage system (with a clear division between companies that only offer minimum wage and those that offer a living wage)  which would run the risk of increasing rather than tackling social inequality. Also, the benefit to the state would be limited because it would be paying out money to the private sector in the form of tax breaks (as well as presumably footing the bill of increased public sector wages).

Simply raising the minimum wage to the level of the living wage, which is what Galbraith advocates, therefore is more economically sensible and beneficial all round as opposed to a half-baked voluntary scheme. Ed needs to be brave and not fight shy of the ideologically motivated but economically illiterate opponents of a living wage; he needs to take them head-on and make the living wage a central plank of Labour’s narrative which espouses a bold and radical vision of a new economy created out of the ashes of the old.

Darrell is an ex-intern and Labour activist and blogger and a candidate for NEC.

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