Why living wages need collective bargaining

Man writing 'Living wage'.

Paying a living wage has been part of the ETI base code since it was first set out in 1998, writes ETI board member and Head of International Relations at the TUC, Owen Tudor in this guest blog on the living wage and the importance of linking any negotiations to collective bargaining with trade unions. 

While paying a living wage has been part of the ETI base code since 1998, the idea has become increasingly prominent in recent years with more than 2,300 employers signing up to the Living Wage Foundation’s voluntary standard.

It has even survived the austerity-driven Chancellor of the Exchequer, George Osborne’s attempt to re-christen the national minimum wage as a ‘national living wage’ (although it’s not entirely clear why under-25s shouldn’t be paid a living wage).

But that experience has thrown up one of the problems of introducing living wages.

Reports of companies responding by cutting back on workers’ hours and other benefits

Since the Chancellor announced his plan to raise the national minimum wage for adults from £6.70 to £7.20 an hour (well below the Living Wage Foundation rates of £8.25 or £9.40 in London), there have been regular reports of companies responding by cutting back on workers’ hours and other benefits while increasing workloads or reducing wage rises or job opportunities higher up the pay ladder.

  • Wilko were reported back in February to be cutting Sunday and Bank Holiday premiums.
  • Boots will allegedly restructure their workforce to remove up to 350 assistant manager posts.
  • In March, the Daily Mail claimed that Whitbread would cut the number of new recruits to reduce its overall wage bill, increasing the pressure on remaining staff.
  • The Daily Mirror reported that B&Q were consulting over the scrapping of double pay on Sundays and bank holidays, and removing the right to additional pay for drivers of fork lifts and other dangerous machinery, and for long-serving staff. Indeed, B&Q staff have launched a public petition, arguing that the national living wage is being “used an excuse” to cut back on premium rates.

However, it’s an exaggeration to suggest this is only happening because of the new national living wage. Employment agency Manpower Director James Hick told the Guardian: “We expect many [companies] to reduce pay for overtime and bank holidays or to flatten their structures and reduce the number of better paid supervisory roles.”

Yet, employers who cut back on conditions or working hours undermine the overall objective of a living wage. That is to ensure people have a level of income providing “enough to meet basic needs and to provide some discretionary income” (according to the ETI Base Code clause 5).

What must happen to ensure a wage is a living wage?

For a wage to be a living wage, it must meet weekly, monthly and annual costs, not just an hourly amount.

And that’s where another part of the Base Code comes in: collective bargaining with trade unions.

The problem with living wages that are defined by governments or academics is that they aren’t responsible for all the other elements that make up a worker’s living standards.

Unions bargaining collectively can cover all the components of such living standards, making sure that workers actually benefit from their introduction.

Paying a mandated hourly living wage, but not collectively bargaining over all the other elements of workers’ terms and conditions, does not qualify as meeting the Base Code conditions as defined by the ETI.

It does not guarantee that workers and their families will end up better off.

NB: I’ve talked in this blog about the living wage as it applies in the UK – whether it’s set by the Government or the Living Wage Foundation. But the same arguments about the interplay between living wages and collective bargaining apply in global supply chains as well. That’s why global manufacturing union IndustriALL is working with global brands in the ACT coalition to collectively bargain a real living wage throughout the supply chain.

Read our living wage guidance and expectations.

ETI's blog covers issues at the intersection of business, news and ethical trade. We welcome a range of insights and opinions from our guest bloggers, though don't necessarily agree with everything they say.