Living Wage vs Minimum Wage – What’s the Difference?

A brief look at a Living wage and a National minimum wage.

Breaking news: 1 in 5 workers are paid less than the living wage. What does that mean? That almost five million working Britain’s are receiving the minimum wage and still do not have enough money to cover the basic cost of living in the UK

So what is the minimum wage? 

The minimum wage is the hourly rate that almost all workers are entitled to as dictated by law and takes into account lots of different factors including the state of the economy, unemployment levels , pensions’ reforms and other government reforms. *Currently the national minimum wage for people aged over 21 is £6.19.

And what’s a living wage?

A living wage is an independently set hourly rate calculated on the cost of living and it is not compulsory for employers to pay this. As you may have guessed, the minimum wage is currently lower than the living wage * which is set at £7.45 per hour.

The debate around both wage tags

Surely the minimum wage should be set at a level that would allow workers the means to afford the basic cost of living? Unfortunately this is not the case and those earning only the minimum wage often have to top up their income by having more than one job, applying for top-up benefits or borrowing.

Recent research revealed that use of a living wage would actually save the government £2bn a year. The extra money paid out in higher wages would go straight to the government in the form of extra income tax and national insurance payments. You can read more about this research here.

However, minimum wage could be better for employees in the long run. The living wage would cost an employer an extra £2,100 each year per employee; a substantial disincentive to any employer making large numbers of hires at low wage levels. Starting at minimum wage could be better in the long run as not only are more going to get hired but once employed, they can gain seniority and experience and will then get paid more.

Currently there is roughly £1 per hour difference between the two wage tags. Over a 40 hour week, that would work out at an extra £41 for the living wage worker. The extra money earned by those on a living wage can make a vital difference in helping low income families cover their basic needs.

is it just a case that society has come to have higher expectations of what is “basic”?

Or have we forgotten how to make do with what we can afford?

There may be ways in which we all could make cut backs on unnecessary luxuries but sometimes that just isn’t enough. When you earn £247 per week with a family to support, rent to pay and utility bills to maintain, cutting back on current expenses may still not be enough.

Possible living wage solution?

The ideal solution would be for employers to simply start paying their employees a living wage as opposed to a minimum wage.

A lot of the bigger firms have signed up to pay the living wage as a minimum. However, some are of the opinion that for smaller businesses the living wage is an aspiration and not affordable; and that enforcing a living wage will simply mean that businesses will inevitably have to increase their prices thus increasing the cost of living anyway….and so the cycle continues and the blame game changes focus from the salary debate to the cost of living debate.

So, where does it start and where does it end? I think the wage debate is such a huge issue across the UK that we need a more concrete solution which genuinely offers a well thought out option – without shifting the financial blame to another area of living and money worries.

Poverty and debt is a complex problem that requires a complex solution, let’s see what our Government can come up with for this one!

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Comments:2

  1. In any society, as a rule, there will always be some who have better capabilities of securing advancement more than others and thus become richer. This seems to be a basic fact of life. Those who can, do, those who can’t – what?
    Everyone has a right to do the best they can for themselves, but not all have the ability. This is the problem and the basic answer is, of course, education, but again, this is not necessarily a speedy solution.
    I suppose that if an adequate living wage is paid to the lowest paid then all the rest will fall into place.
    That would be a very good thing.

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