New Economy Working Paper, ‘Pay up? Living costs and the living wage in Manchester'

New EconomyWorking Papers

Pay up? Living costs and the living wage in Manchester

John Holden / Luke Raikes

July 2012

NEWP 009

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02 | Pay up? Living costs and the living wage in Manchester

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The authors would like to thank all those who strengthened this piece ofwork with their feedback and assistance, both informally and formallythrough the peer review process. We borrowed heavily from the work ofDonald Hirsch and the Living Wage Foundation in calculating aManchester Living Wage and would like to thank them in particular. Ofcourse, the opinions expressed, and any errors or omissions, remainour own.

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Pay up? Living costs and the living wage in Manchester | 03

Abstract

This paper analyses changes toearnings and the cost of living inManchester, finding that since 2009 acombination of stagnant wages, highinflation, and reduced hours workedhas resulted in a dramatic reductionin real pay for the lowest paid. Thecase for Manchester adopting a livingwage policy to support the lowestpaid to meet basic living costs isexplored. Using local living cost datafor typical household types a livingwage rate of £7.22 per hour iscalculated for Manchester. The likelyimpact of a living wage is analysedby assessing the theoretical andevidenced costs and benefits,drawing in particular on evidencefrom cities that have already adoptedliving wage policies. The paper

argues that low and falling real wagesat the bottom end of the pay scalerepresent a significant challenge forManchester. Based on theexperience in the US and London,promoting a Manchester living wageis likely to have a positive impact onwages for some of the lowest paid,with negligible negative economicimpacts. However, it is not on its owna sufficient response. Policy makersin Manchester should also consideradopting wider policies that targetlow incomes (not just low hourly pay)in conjunction with policies directedat reducing the cost of living inManchester and addressing theunderlying skills and employmentissues which the city faces.


Table ofContentsExecutive summary 05

1: Introduction 08

2. Pay and income in Manchester 10

3. Why a living wage? 20

4. Calculating the Manchester living wage 30

5. Costs and benefits: the potential impact of a Manchester living wage 38

6. Conclusions 46


ExecutiveSummaryReal wages and incomes of the lowestpaid in Manchester have fallendramatically since 2009, alongsidesubstantial increases in the cost ofessential goods and services. In realterms, hourly wages for the bottom10% of earners in Manchester fell by 50p (7.5 percent) in two years. Real annual wages fell even moredramatically for the bottom 10%: part-time workers have faced a £619(19.8 percent) wage cut and full-timeworkers’ pay fell by £904 (6.1 percent).There are an increasing number ofhouseholds in Manchester that, even if they are able to secure full-timeemployment at the minimum wage, will earn less than they need to achievea reasonable quality of life, even takinginto account the benefits and taxcredits to which they are entitled.

By adopting a methodology developed to calculate aliving wage for the UK outside London, we develophourly wage requirements for nine household types inManchester based on their income requirement tomeet an acceptable standard of living. We find thathourly wage requirements, assuming the individual isin full-time work, range from below the nationalminimum wage (childless couples, lone parents withone or two children, and couples with one child) tomore than one and a half times the national minimumwage (singles and couples with three or four children). A weighted Manchester living wage iscalculated to be £7.22 per hour, over £1 higher thanthe national minimum wage but broadly in line withthe national rate outside London calculated by theLiving Wage Foundation.

The potential impact of a living wage on Manchesteris explored by analysing the theoretical effects andthe empirical evidence from cities that haveimplemented a living wage policy. It is concluded thatManchester adopting a living wage policy to addresslow pay is, due to both the scale and acuteness of the challenge, unlikely on its own to improve incomes.A broader response is suggested that seeks to bothraise the income (not just hourly pay) of the lowestpaid while simultaneously reducing the living costsfaced by these individuals, which could incorporate,but is not limited to, paying workers a living wage.


The recommendations below are provided to support these twin objectives.

• Manchester’s strategic approach to improving life chances should place greater weight on increasing the real incomes of those in low paid work.

• Actions to raise the number of hours worked by thelowest paid should be developed, potentially funded through a community budget approach.

• Skills interventions should be delivered to support low paid workers to progress in work, alongside support to employers to utilise these skills.

• In light of the current conditions experienced by low paid employees, employers in Manchester should explore the feasibility of paying staff a living wage, or aspiring to do so when they are able to absorb the cost without it inflicting potential negative consequences. Although the current fiscaland economic climate may mean this is challenging, some public and private employers have managed to do so already: the judgement is for employers to make.

• As overall living costs in Manchester are similar to those in other regions outside London, a specific Manchester living wage calculated annually is not required. Local living cost data should be regularly published to support the public and private sector in paying living wages based on business and social objectives. However the Living Wage Foundation’s figure for the living wage outside of London should be taken as applying to Manchester, as there is insufficient variation to justify a separate rate.

• Manchester should focus on lowering the cost of living for the lowest paid by:

- developing approaches to increase the supply, and reduce the cost, of affordable housing;

- working with transport operators to ensure that the lowest paid have affordable access to key employment sites; and

- exploring ways to make childcare more affordable.

• Support should be provided to residents who are in debt through advice and support services and improving access to ‘fair’ credit.

Real wages and incomesof the lowest paid inManchester have fallendramatically since 2009,alongside substantialincreases in the cost ofessential goods andservices. In real terms,hourly wages for thebottom 10% of earners in Manchester fell by 50p(7.5 percent) in two years.


1

Introduction


Pay is perhaps the most emotive issue in the debatesurrounding the UK’s attempt to move towardssustainable economic growth. Bankers’ bonuses,public sector pay freezes and benefit payment capshave all stirred controversy and debate, and capturedthe public interest, in a way that quantitative easingand R&D tax credit reform sadly have not. It is notdifficult to understand why this is the case:households across the UK are feeling the pinch ashigh inflation combined with pay freezes andredundancies erode real incomes. For many this willmean having to forgo a foreign holiday or delayingbuying a new car; a hardship but a survivable one.For some, however, the impact will be much moresevere, with family incomes no longer stretching tomeet basic needs.

Rising living costs disproportionately affect those atthe bottom end of the earning scale. One way bywhich Manchester1 could respond to thesechallenges is by calculating a ‘Manchester livingwage’ – based on the true costs faced by the lowestpaid to meet basic needs such as shelter, clothingand nutrition – and encouraging employers to pay thisrate. Successfully implemented living wage policiescan reduce in-work poverty and directly improve thequality of life of beneficiaries. They can also havepositive spill-over effects such as reduced incomeinequality and increased community cohesion (see,for instance, Vittanen and Schmuecker, 2001). Thiscould support Greater Manchester’s objective tomake the city a “fairer... and more inclusive place tolive” (AGMA, 2009).

In the UK the living wage movement has beensuccessful in pushing the issue of low paid work upthe political agenda – David Cameron said in May2011 that the living wage is ‘an idea whose time hascome’ (Stewart and Loweth, 2011) – and increasingwages for some of the UK’s lowest paid workers.However, detractors have pointed to the bluntness ofa living wage approach, the possible negative impacton economic competitiveness, and legal and practicaldifficulties with implementing the policy. This paperexplores these debates in a Manchester context. It is structured as follows:

• chapter 2 analyses how pay has changed in recentyears in Manchester, focusing in particular on the lowest paid;

• chapter 3 provides a short background to the living wage movement and examines the approach of cities where a living wage has already been adopted;

• chapter 4 estimates the living costs for different household types in Manchester and calculates a Manchester living wage for 2012/13;

• chapter 5 reviews the theoretical and evidenced benefits and costs of Manchester adopting a living wage approach; and

• chapter 6 offers conclusions on the necessity, viability and impact of a Manchester living wage and makes policy recommendations for Manchester.

1 In this paper ‘Manchester’ is used to refer to the 10 local authority districts ofBolton, Bury, Manchester, Oldham, Rochdale, Salford, Stockport, Tameside,Trafford and Wigan.

2

Pay and income in Manchester


“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual incometwenty pounds, annual expendituretwenty pound ought and six, result misery.”Wilkins Micawber, David Copperfield.

When Charles Dickens wrote David Copperfield in1850 he presumably did not intend to establish thediscipline of happiness economics. He certainly couldnot have foreseen the rise of Tax Credits, child benefitpayments, and other redistributive policies that meantoday an income of twenty pounds with expenditureof twenty pound ought and six, may or may not resultin misery depending on the net position. However, hedid succinctly highlight the thin line between earningjust-enough-to-get-by and earning not-quite-enoughand the huge impact that this can have on people’slives. Poverty does not just affect the out-of-work but,increasingly, those in work too.

This section looks at trends in income and wagesover the past decade in Manchester focusing on howchanges have affected those at the bottom of theincome scale.

Trends in income and wages

There are two long-term trends in income distributionwhich have been observed in the past three decades.The first observation is that income of those at the tophas pulled away from that in the middle, a trend whichhas continued steadily since the 1980s irrespective ofbusiness cycle or the political party of government.The second observation is that of incomes at thebottom failing to keep pace with incomes at themiddle and top (Bell and Van Reenen, 2010). Although recently there has been a focus of researchon the extent to which inequality across the wholedistribution can have negative effects on well-being(the main work being Wilkinson and Pickett, 2011), for the purposes of this report it is the second trendwhich is of interest – the stunted wage growth of thelowest paid – and how this interacts with rises in thecost of living.

The disparity in income between those at the bottomof the distribution and those in the middle increasedsharply in the 1980s, coinciding with structuralchanges in the economy and declining trade uniondensity, but slowed and even reversed slightly duringthe 1990s and 2000s. In particular pro-activegovernment legislation introduced since 1997 hashad a positive effect – particularly the nationalminimum wage (introduced in April 1999) and TaxCredits (Brewer and Wren-Lewis, 2011). WorkingFamilies Tax Credit was introduced in October 1999to provide incentives to work by raising the incomesof those on or around the minimum wage. WorkingFamilies Tax Credit was subsequently replaced withChild Tax Credit (designed to simplify the system of


financial support for parents) and Working Tax Credit(designed to make work more financially attractive),both of which are due to be merged into the singleUniversal Credit which is being phased in from 2013.

From its inception in 1999 to 2006, increases to thenational minimum wage outstripped rises in bothaverage earnings and inflation (see figure 1)2. Since2006 the national minimum wage has lost valueagainst inflation, although it has kept pace withaverage earnings growth. The net result of this is that,as of 2011, the hourly earnings of the lowest paid

have slipped away from costs, although they havestayed in line with the growth in wages of othergroups. Tax Credits in particular have had a significantimpact on the income of the lowest paid – particularlyfamilies with children – accounting for an estimated40 percent of the increase in average net householdincome over the period 2002–03 to 2008–09. It hasbeen estimated that, without Tax Credits, those onlow to middle incomes would have seen a fall in realincome between 2002-03 and 2008-09 (Brewer andWren-Lewis, 2011).

Figure 1: Adult national minimum wage, bottom 10 percent hourly pay, median pay and RPI inflation

2 There are two main measures of inflation in the UK: the Retail Prices Index (RPI) and the Consumer Prices Index (CPI). In this report we have used RPI inall calculations of inflation and for determining real increases in pay and living costs because it includes crucial items of expenditure for this purpose – inparticular costs associated with housing and council tax – a view taken also by the Resolution Foundation in their work on the cost of living. For moreinformation see here: http://www.ons.gov.uk/ons/guide-method/user-guidance/prices/cpi-and-rpi/index.html

150

140

130

120

110

100

90

80

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

National Minumum WageMedian Gross Hourly Pay10th Percentile Gross Hourly PayRPI

145

134132

127

Source: authors’ calculations of ONS (2012); Annual Survey of Hours and Earnings (2012); Low Pay Commission (2012)


Wages in Manchester

Turning to Manchester, median gross hourly paystood at £10.74 in 2011, in line with northerncomparator cities but below the better performingcities of Bristol and, especially, London. The grosshourly wage of the bottom decile (the wage levelbelow which 10 percent of earners fall) was £6.27 –only marginally above the 2011 minimum wage of£6.08, again putting Manchester in line with othercities outside London and Bristol.

Between 2002 and 2009 the hourly pay of the lowestpaid 10 percent of workers in Manchester rose at a

more rapid rate than inflation; this was in line with theexperience of the country as a whole. In real terms(taking inflation into account), the average hourlywage of someone in the bottom 10 percent of earnerswas 6.8 percent higher in 2009 compared with 2002.However since 2009 high levels of inflation, combinedwith stagnant wages have seen real wages falldramatically – in 2011 wages were 50p (7.5 percent)per hour lower for the poorest workers in Manchester– a similar situation as in the UK as a whole wherethere was a 49p per hour cut in real terms. This meansthat, for many, the higher real wage attained between2002 and 2009 was more than wiped out by 2011,leaving pay 1.2 percent lower in 2011 than in 2002.

Table 1: Gross hourly pay (£), Manchester and selected cities, 2011

Percentiles

10 25 50

Manchester £6.27 £7.69 £10.74

Birmingham £6.25 £7.60 £10.86

Bristol £6.54 £8.59 £12.01

Leeds £6.38 £7.82 £10.67

Liverpool £6.15 £7.50 £10.47

London £7.19 £10.12 £15.67

Newcastle £6.29 £7.98 £10.71

Nottingham £6.26 £7.94 £10.89

Sheffield £6.18 £7.59 £10.81

Source: Annual Survey of Hours and Earnings (2012)


There are significant disparities between changes inhourly pay and annual pay however. Annual pay fellbetween 2009 and 2011 even before inflation is takeninto account with the result that, in real terms since2009, part-time workers’ annual pay has reduced by£619 (19.8 percent) and full-time workers’ by £904(6.1 percent) – taken together the real annual incomeof the all of the lowest paid 10 percent of workers inManchester fell by an average of £1,317 (17.5 percent).

This is illustrative of the complexity of workingpatterns for the lowest paid, with hours worked aswell as hourly wages impacting on annual pay: 28.0percent of those in employment now work part-time,up from 24.3 percent in 2002. However, while thenumber of people working part-time has risen, theaverage number of hours they work has fallen, froman average of 8.0 to 6.8 between 2002 and 2011. So,despite average part-time hourly wages of the bottomdecile of earners rising by 7.3 percent in real termsbetween 2002 and 2011 (see figure 2) the averageannual salary of this group fell by 6.1 percent.

This long-term trend in increasing numbers of peopleworking part-time while fewer hours are worked looksto have been exaggerated by the recession. Since2007 there has been a dramatic rise in living costs (asshown by the steep rises in RPI in figure 1) but thishas not been accompanied by significant upwardspressure on wages, as might usually occur in agrowing economy. In part this is a function of therecession’s impact on unemployment – both currentemployees and those seeking work have lessbargaining power to push for higher pay. This hasbeen boosted in the public sector by nationallyenforced wage freezes. In addition to stagnant realwages, employers have been willing to implement,and employees to accept, reductions in full-timeworking and over-time, and increased part-timeworking (New Economy, 2012), similar to patternsseen in previous recessions (Gregg and Wadsworth,2010). Many of those working part-time are not doingso by choice: recent figures show that the number ofpeople working part-time because they could not finda full-time job now stands at 1.42 million nationally –

Figure 2: Real wages of bottom decile full-time and part-time workers in Manchester

120

115

110

105

100

95

902002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Full TimePart TimeTotal

107.3

98.8

96.4

Source: authors’ calculations of Annual Survey of Hours and Earnings, (2012)


the highest level since records began in 1992 (Officefor National Statistics, 2012).

The result for both the UK and Manchester is thatemployees are working fewer hours and also beingpaid less for the hours they work, thereby takinghome a significantly lower salary at a time when livingcosts are rising.

Gender and pay

The past decade has seen significant changes togender pay differentials amongst the lowest paid.Females in the bottom 10 percent of earners saw afar greater percentage increase in average hourly pay(35.3 percent) than males (19.5 percent) and, althoughthis remained at a lower level in absolute terms, therewas significant convergence between the sexes. In2011 there was a 34p per hour difference in paycompared to an 88p difference in 2002. However astable 2 illustrates below, of all groups it was part-timemale workers whose wages accelerated the mostduring the period.

The wage gap that persists between male and femaleworkers is now only observed between male andfemale full-time workers, with both male and femalepart-time wages paid at £5.93 per hour. That said,women are significantly more likely to be in part-timework than men, and so are more likely to be in thislower paid group. With respect to full-time workers,there has been a narrowing of the gap between 2002and 2011 – female full-time pay went from 87.1% to96.9% of male full-time pay; however there is still a22p per hour gender gap. In terms of annual pay thisgap is considerably worse: women are paid 85.7% asmuch as men, with an annual income of £12,896compared to £15,047.

Table 2: Percentage increase in hourly pay since 2002 for bottom decile earners - Manchester

Part-time Full-time Total

Male 44.6% 22.3% 19.5%

Female 41.2% 36.0% 35.3%

Total 43.2% 28.8% 31.9%

Source: authors’ calculations of Annual Survey of Hours and Earnings (2012)


Annual pay in Manchester

The result of those in the bottom 10 percent ofearners working fewer hours is that annual salariesare significantly more stretched than hourly wages.Whereas the bottom 10 percent of earners averagehourly rate of pay in 2011 was 58 percent of themedian (table 1), their average annual gross salarywas just 31 percent of the median (table 3). Theoverall trend is the same for cities across England,with the exception of London where bottom decileannual pay was just 46 percent of median.

While table 1 highlights that bottom decile hourly payin Manchester fare reasonably well against otherprovincial cities, table 3 shows that the annualearnings of the bottom decile compare poorly. Thereare significant health warnings on the data but theannual earnings of the bottom 10 percent appear tobe lower in Manchester than any other English city. Ifthe challenge in Manchester is annual income nothourly pay, this has important implications for theeffectiveness of a living wage approach.

Figure 3: Trends in hourly pay for bottom decile of part-time male and female workers - Manchester

£7.50

£7.00

£6.50

£6.00

£5.50

£5.00

£4.50

£4.00

£3.50

£3.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Male FTMale PTFemale FTFemale PT



Wages by sector and occupation

A key factor driving differentials in hourly rates of payare the sectors and occupations in which peoplework. Unfortunately earnings data by these variablesare only available at the North West level; however itis illustrative to look at these to understand where theimpact of raising low levels of pay is likely to be felt.

At the North West level the average bottom decilehourly pay across all occupations is £6.18. Rates ofpay are below this average in elementary occupations

(£5.89), Sales and customer services (£5.93), andcaring, leisure and other services (£6.03). Onlymanagers, directors and senior officials (£7.80),associate professional and technical (£8.01) andprofessional occupations (£11.41) pay hourly rates tothe bottom 10 percent of earners above that of thebottom 25 percent for all occupations (£7.52). Hence,the breadth of occupations that a living wage wouldneed to cover is likely to be extremely wide – includingskilled, semi-skilled and unskilled occupations.

Table 3: Gross annual pay (£), Manchester and selected other cities, 2011

Percentiles

10 25 50

Manchester £6,323 £12,805 £20,399

Birmingham £6,331 £12,791 £21,000

Bristol £7,344 £14,404 £22,449

Leeds £6,838 £12,920 £20,303

Liverpool £6,327 £12,394 £20,007

London £8,703 £18,107 £30,115

Newcastle £6,784 £12,799 £20,463

Nottingham £6,976 £12,625 £20,820

Sheffield £6,434 £11,839 £19,851

Coefficient of variation is less than 5%. Coefficient of variation of between 5% and 10%.

Coefficient of variation of between 10% and 20%. The lower the coefficient of variation the more robust the figure.



This breath of coverage is replicated in data for hourlyrates of pay by sector. Several sectors pay bottomdecile hourly rates of pay below the minimum wage,with most notably the bottom 10% of earners inaccommodation and food service activities getting anaverage of just £5.00 per hour. A clear public-privatesplit is not evident. Public sector workers inadministration earn amongst the highest rates of the

bottom 10 percent (£8.71), however employees in the(predominantly public) education and human healthand social work sectors earn just above the averagefor the bottom 10 percent of earners. Clearly, anyattempt to boost the earnings of the lowest paidwould need to impact widely on both the public and private sectors.

Figure 4: Bottom decile hourly pay by occupation – North West, 2011

Professional

Associate professional and technical

Managers, directors and senior officials

Administrative and secretarial

Skilled trades

Process, plant and machine operatives

All occupations

Caring, leisure and other service

Sales and customer service

Elementary

0 2 4 6 8 10 12


£11.41

£8.01

£7.80

£7.00

£6.51

£6.30

£6.18

£6.03

£5.93

£5.89


Outlook

The Office for Budget Responsibility does not expectearnings to rise faster than prices by a significantmargin before 2014 and the wage share in the UK islikely to continue to fall until 2016 (Office for BudgetResponsibility, 2011). Recent policy announcementsby Government – in particular the indexation of allbenefits and Tax Credits to the Consumer Price Indexinstead of the almost always higher Retail Price Indexand the below inflation rise in the national minimumwage – will add further to the financial pressure on thelowest paid (Brewer, Brown and Joyce, 2011). This isnotwithstanding the increase to the personal taxallowance, which will benefit, in the main, full-timeworkers within the bottom 10 percent of earners butnot part-time workers.

Based on this, and accounting for changes to the TaxCredit regime, it has been estimated that typicaldisposable household income for low and middle

earners is set to fall 8 percent by 2015 and that – evenmodelling for the unlikely scenario of high growth andwages increasing – it would take until 2020 for low tomiddle income households to reach the position theywere in 2007-08. The far more likely scenario is thatlow and middle income households are left inessentially the same position as in 2001 (ResolutionFoundation, 2012).

The outlook is therefore a challenging one for thelowest paid in society. While those above them in theincome distribution will also see a decline in livingstandards – and those below will be struck with fallingbenefit payments in real terms, increased employmentseeking conditionality, and greater competition for thejobs that are available – this chapter has highlightedthe specific pressures which are being brought to bearon the working poor. The next chapter analyses thecase for adopting a living wage policy to mitigate theworst of these effects.

Figure 5: Bottom decile hourly pay by sector, North West, 2011

Electricity, Gas, Steam and Air Conditioning Supply

Public Administration and Defence; Compulsory Social Security

Financial and Insurance Activities

Information and Communication

Transportation and Storage

Professional, Scientific and Technical Activities

Construction

Real Estate Activities

Water Supply; Sewerage, Waste Management and Remediation Activities

Manufacturing

Education

Human Health and Social Work Activities

All Sectors

Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles

Administrative and Support Service Activities

Other Service Activities

Arts, Entertainment and Recreation

Accommodation and Food Service Activities

0 2 4 6 8 10 12

£9.64

£8.71

£7.89

£7.47

£7.31

£7.15

£7.14

£7.04

£7.00

£7.00

£6.78

£6.47

£6.18

£5.97

£5.95

£5.93

£5.93

£5.00


3

Why a livingwage?


Manchester’s approach to improvinglife chances, as set out in the GreaterManchester Strategy (AGMA, 2009), isprincipally focused on getting moreresidents into work. With over 273,000residents on out-of-work benefits (onein six of the working age population),the reasons for this approach are selfevident. However, as set out in theprevious chapter, increasingly the lifechances of those in work arenegatively affected by stagnating realwages and rising living costs.Research by the Department for Workand Pensions (DWP) shows that 60percent of poor adults live in workinghouseholds and that 13 percent offamilies where at least one personworks are below the official povertyline (DWP, 2011).

Table 4 presents data from DWP’s Households BelowAverage Income survey, which highlights why dealingwith low pay of the in-work is essential in tacklingpoverty. Workless households (with the exception ofthose where one household member has retired) aresignificantly more likely to be in the bottom 20% ofincome distribution (quintile) – almost three-quartersof households with one or more unemployed member,and over half of those with inactive members, haveless disposable income than 80 percent of thepopulation. However, households with one or moremembers in work also fall into the lowest incomequintile, with almost half (47 percent) of the totalnumber of families in the bottom quintile having atleast one member with a job. Clearly, an approach topoverty alleviation that focuses solely on gettingpeople into work will miss a significant part of theworking poor – not least the 11 percent of the bottomquintile where all members of the household are infull- or part- time work and the 11 percent that are selfemployed. For many of those at the bottom of theincome scale, being in work is a necessary conditionfor avoiding poverty but it is not sufficient.


The remainder of this chapter provides anintroduction to living wage approaches by exploringthe history of the living wage movement and theexperiences of cities that have introduced living wages.

What is a living wage?

Perhaps the most widely recognised definition of aliving wage is that produced by the Family BudgetUnit at the University of York. This defines a livingwage as “a wage that achieves an adequate level ofwarmth and shelter, a healthy palatable diet, socialintegration and avoidance of chronic stress forearners and their dependents” (GLA Economics,2011). This is also the definition used for the Londonliving wage. It is related to, but not the same as, apoverty threshold wage. Indeed the stipulation that itshould lead to the avoidance of chronic stress meansthat a living wage is likely to be some way above thepoverty threshold.

While there are obvious parallels with the nationalminimum wage, there are key differences that setthem apart. First, the Low Pay Commission, whenrecommending each year the rate at which theminimum wage should be set, has to take intoaccount the effect of the minimum wage on theeconomy of the UK and its competitiveness. Thismeans that the rate does not necessarily reflect whatis required to live a reasonable quality of life. A livingwage approach in contrast estimates what is requiredto live and works backwards from that. This leads to athird, related issue, which is that the minimum wagedoes not necessarily keep pace with rising livingcosts, as has been seen in the UK since 2009, whichby definition a living wage would.

The mode of implementation and coverage of a livingwage also differs to the national minimum wage.While the UK government could, in theory, calculatethe national minimum wage based on a living wageapproach, in practice it has resisted calls to do so.

Table 4: Economic status and bottom income quintile, 2009/10

Economic status of adults in the family Percent in bottom incomequintile (after housing costs)

Percent of total bottomquintile population

One or more full-time self-employed 23 11

Single/couple all in full-time work 5 7

Couple, one full-time, one part-time work 6 4

Couple, one full-time work, one not working 21 12

No full-time, one or more in part-time work 28 13

Workless, one or more aged 60 or over 16 14

Workless, one or more unemployed 73 13

Workless, other inactive 56 27

Source: Department for Work and Pensions, Households Below Average Income, (May 2011)


The most recent below inflation rise in the minimumwage suggests that this will be the case for theforeseeable future. Minimum wage legislation is not adevolved function in the UK (the devolvedadministrations are bound by the rate set atWestminster) and therefore any locally calculatedliving wage would need to be voluntarily implementedby local employers. Living wage ordinances in the UK(and indeed the US) have therefore been adopted ona non-statutory basis, mainly led by public sectororganisations. As a result of this, the nationalminimum wage has much greater coverage acrossthe economy. It includes all workers in all sectors and,in the UK, its statutory nature means that complianceis very high. However, a strength of a non-statutoryliving wage is that it does not need to be uniformacross the UK and can vary from place to place toreflect differences in the cost of living.

In this paper it is assumed that, if Manchester were toadopt a living wage policy, this would be anindependently set rate, which would be phased in bylocal public sector agencies that have the autonomyto do so, and to which contractors for publicly-fundedcontracts would be expected to comply. It is alsoassumed that local private sector employers wouldbe encouraged to pay the living wage.

Early History

The concept of a living wage approach to tackle theproblem of in work poverty is not a new one. JaneWills (2009) has extensively tracked the history of theliving wage movement, identifying living wagecampaigns in Britain’s industrial regions as early asthe 1870s.

In 1894 Liberal MP (and textile factory owner) MarkOldroyd put forward the most comprehensiveargument for a living wage of the period. He declaredthat “a living wage must be sufficient to maintain theworker in the higher state of industrial efficiency, withdecent surroundings and sufficient leisure…[providing] reasonable time for recreation and rest

[and] reasonable home comforts”. This would be paidfor by “increased efficiency; greater consumption,which would help fuel demand; and in some cases byfalling profits and/or rising prices” (Wills, 2009). Healso stressed the ethical imperative of giving workerswages that were sufficient to provide for themselvesand their families. The same basic arguments are stillput forward in favour of living wage policies today.

Campaigning for a living wage (and other reforms toimprove the quality of life of the lowest paid) gatheredpace in the early twentieth century, culminating in aliving wage bill being put to the House of Commons in1931 by Independent Labour Party MP JamesMaxton. However, the bill was roundly defeated and,post-war, the rise of the welfare state dampened callsfor a national living wage. Thus, 1931 remained thehigh water mark of the living wage movement inBritain until a campaign re-emerged in London in2001.

Re-emergence of the living wage

The contemporary rise in the living wage can betraced to the city of Baltimore in the United States,which passed a bill in 1994 requiring firms withcontracts with the city to pay workers a living wage of$6.10 per hour. Over 120 cities in the United Statesnow have living wage policies, although the numberof workers covered is still relatively limited (in generalUS living wage policies do not cover city employees,only firms under contract to the city).

In their exploratory study for a living wage in Wales,Marsh et al (2010) cite research carried out in theUnited States by Neumark and Adams (2003) on thekey features of living wages in a cross-section ofcities. These are summarised in table 5. Generally theliving wage rate in these cities is set in relation to thepoverty line based on the income needed (as definedby a budget survey) by a standard household (usuallya family of three or four) to achieve an adequatestandard of living.


There is significant difference across the 21 cities inthe scope and coverage of the living wage policies.Almost all (19) cover contractors, with some alsocovering sub-contractors, but just five cover cityemployees (of which one is limited to home healthstaff). Businesses in receipt of financial assistancefrom the city are covered by a smaller number ofliving wage ordinances. Estimates – where they areavailable – of the coverage of these living wagepolicies (expressed as a percentage of the totalbottom quartile of earners) range from 0.25 percent

(San Jose) to 2.05 percent (Baltimore). However, thisis thought to be at the lower bound of impact, asevaluation methodologies used generally do not takeinto account spill-over effects or workers employed inbusinesses in receipt of financial assistance.

The living wage rate itself ranges from a low of 120percent of the minimum state or federal wage to ahigh of 173 percent, which reflects differing levels of‘generosity’, different methods of calculation, andvariable costs of living in each of the cities.

City

Coverage of living wage3

Hourly wage(2000 ornearest date)

State /federalminimumwage (2000)Contractors Sub-

contractorsCityEmployees

Businessesin receipt offinancialassistance

Commercialdevelopmentprojects

BaltimoreConstruction andservice contracts>$5,000

$7.90 (1999) $5.15

Boston >$100,000 >$25,000 $8.53 $6.00

Buffalo >$50,000 & >10 employees

>$50,000 &>10 employees

$6.22 (withhealth benefits)$7.22 without)

$5.15

Chicago All All $7.60 (1998) $5.15

Dayton All

$7.00 (withhealth benefits)$8.50 (without)(1998)

$5.15

Denver >$2,000 >$2,000 $8.20 $5.15

Detroit All All >$50,000 $8.53 $5.15

Durham All All $7.55 (1998) $5.15

Hartford >$50,000 >$100,000 $9.38 $6.15

Jersey City All $7.50 $5.15

Los Angeles >$100,000 >$100,000 $7.69 $5.75

Milwaukee >$5,000 >$5,000 $6.80 $5.15

Minneapolis >$25,000 $8.35 $5.15

Oakland >$25,000 >$100,000 $8.35 $5.75

Omaha >$75,000 All >$75,000$8.19 (withhealth benefits)$8.50 (without)

$5.15

Portland Custodial, security &parking contracts $8.00 (1999) $6.50

St Louis Those with tax breaks

Those with tax breaks $8.84 $5.15

San Antonio Those with tax breaks $9.27 (1998) $5.15

San Francisco >$25,000 & airportleaseholders

Home healthstaff

$9.00 $5.75

San Jose >$20,000 All >$100,000 $9.92 $5.75

Tucson All$8.00 (withhealth benefits)$9.00 (without)

$5.15


Source: Adapted from Neumark and Adams (2003), cited in Marsh et al (2010).

3Figures refer to the value of contract over which the living wage policy kicks in, so that ">$5,000 " means that contractors have to pay a living wage to their employees if they get a contract for more than $5,000 from the public authority.

Table 5: Coverage of select living wages in the United States


The living wage in London and the rest of the UK

In the UK the most high profile living wage is thatwhich has been adopted in London. The campaignfor a London living wage began in earnest in April2001 based on the argument that low pay impacts on health outcomes, education, and family andcommunity life. Spearheaded by London Citizens – a broad alliance of community groups, including trade unions and religious organisations – it has since been picked up by the Mayor of London (initially Ken Livingstone but Boris Johnson hascontinued to give political and financial backing). The Greater London Authority (GLA) is funded tocalculate the London living wage on an annual basis taking into account changes to living costs and tax and benefit entitlements.

As the most advanced UK example it is worth lookingin detail at the London case. To calculate the Londonliving wage two figures are calculated. First, a ‘bottomup’ process estimates a ‘Low Cost but Acceptable’budget for different household types and calculatesthe wage needed to meet these costs (the BasicLiving Costs approach). Second, the hourly wagerequirement to reach 60 percent of the medianincome is calculated (the Income Distributionapproach). The average of these two figures (whichwere £6.85 and £7.65 respectively in 2011) is taken togive the ‘poverty threshold wage’. To ‘protect againstunforeseen events’, 15 percent is added to thepoverty threshold wage. In 2011 this meant theLondon living wage was £8.30 per hour. The Londonfigure takes into account means-tested benefits (taxcredits, housing benefits and council tax benefits), butwithout these the living wage would be £10.40.Approximately 10 percent of Londoners working full-time earn below the living wage, of which three-fifthsearn below the poverty threshold wage. Part-timeworkers are disproportionately likely to earn belowthese thresholds, with 40 percent earning less thanthe living wage, of whom three-quarters earn belowthe poverty threshold (GLA Economics, 2011).

Research by Jane Wills (2011) – an academic atQueen Mary’s University and campaigner for theLondon living wage – suggests that since 2005 theLondon living wage has increased the pay of 10,340Londoners (around three-fifths of whom work full-time) which has resulted in an additional £100m havingbeing paid to the lowest paid Londoners up to 2011.

Employers committed to paying the London livingwage now include as diverse organisations asBarclays and HSBC, Lush, the Tate and Eversheds.The GLA Group – incorporating Transport for London,the London Development Agency, London Fire andEmergency Planning Authority and the MetropolitanPolice Authority – has been phasing in the Londonliving wage which, as of May 2011, has resulted inover 3,000 employees (direct, contracted andtemporary) receiving the uplift. The GLA Groupincludes living wage stipulations in its ResponsibleProcurement Policy, although whether or not astipulation is viable is considered on a case-by-casebasis for each contract on the ‘relevance andproportionality of London living wage provisions tothe subject of the contract, its size and duration’(GLA, 2009). This has led to living wage stipulationson a number of support services, including cleaning,catering and porterage contracts whilst keepingwithin the parameters of the EU legislation.

The GLA (2009) cites the London living wage ashaving ‘clear economic and social benefits foremployees – who benefit directly; government –which makes direct savings on in-work benefitpayments; and London – which benefits from thepositive impacts on relatively poor individuals andfamilies.’ Feedback from contractors who haveimplemented London living wage provisions hasidentified benefits that include:


• ‘easier recruitment and retention, reducing recruitment costs;

• higher quality staff;

• better attendance;

• better productivity, motivation and loyalty; and

• better quality of service.’

However, the published evidence is still relativelyanecdotal. Importantly, one would expect a companygiving feedback to the body responsible for renewing– or not – their funding to be willing to please bygiving ‘the right answer’. The evidence to date on theLondon living wage has not been able to accuratelycalculate the potential negative impacts of a livingwage, such as displacement of low paid, low skillworkers, which mean that the net effect on the lowestpaid may not be wholly positive. The potential impactof these effects is explored in more detail in chapter 5.

However, despite the lack of robust quantification, theperceived success of the London living wage – andthe powerful principle behind the living wageapproach – has led to active campaigns emerging inother parts of the UK, including Glasgow, Wales(where it has been the subject of an intensivefeasibility study by Welsh Assembly), Oxford, Leeds,and Brighton (Hirsch and Moore, 2011). Since 2008Manchester City Council has paid its workers the‘Manchester Minimum Wage’ (currently set at £6.84)and in 2011 Oldham Council adopted a living wage of£7.00 for its employees.

Why Manchester?

Living wage requirements vary across the UK basedon different localised costs. Variations in local cost aredriven principally by housing costs, but also includeother major expenses such as transport (where ruralareas in particular experience higher costs because ofa greater need to use private transport) and childcare.

Calculating a living wage at an individual city level fitswith the logic of a functional economic area. It is atthis geographical level that most employers recruit the majority of their workforce and the level at whichconsistent pay deals could be negotiated. It is alsothe level at which most employees travel to work, so it can accurately reflect the costs of the localgeography. A wage set at a lower spatial level (say anindividual district) would not reflect the reality formany workers who have to commute to the area ofwork from higher (or indeed lower) cost areas. A wage set at a higher geographical level (say theNorth West) covers such a diverse geography that itmay lead to low paid workers living in Manchesterreceiving a living wage that has factored in the lowerliving costs in other parts of the region, whichemployees in Manchester cannot reasonably beexpected to achieve.

The approach of calculating living wages for individualcity regions is not without its critics however. CitizensUK – the organisation that established the LivingWage Foundation and leads much of the UK’s livingwage campaign – have devised a methodology forcalculating the living wage outside London. Theysuggest that the development in the US of livingwages in individual cities without a commonframework for the calculation of hourly rates hasnegatively impacted on the effectiveness of livingwage campaigns, which have been undermined as a result of this fragmentation (Luce, 2005, cited inHirsch and Moore, 2011).

Moreover, in a UK context, it is clear that London hasfar higher living costs than the rest of the country andso a separate living wage is eminently sensible.However, it is less clear cut outside London wherecosts are much more consistent. Figure 6 shows that,while prices in London are around 8 percent higher onaverage than the UK average, it is clearly the outlierand the remainder of the regions of the UK are allwithin 3 percent of the national price level.


The calculations in the next chapter present ouranalysis of what a reasonable level would be for aliving wage in Manchester, which is then followed byan objective assessment of the likely impact ofManchester adopting a living wage approach.

Figure 6: Price level relative to national price level (UK=100), 2010

London

South East

East

West M

idlands

Soctland

South West

East M

idlands

Wales

North West

North East

Northern Ireland

Yorkshire and

the Hum

ber

110

108

106

104

102

100

98

96

94

92

90

107.9

102.3

101.2

100.6

99.7

99.5

99.4

98.4

98.2

98.2

98.1

97.0

Source: Office for National Statistics, UK Relative Regional Consumer Price levels for Goods and Services for 2010

The contemporary rise inthe living wage can betraced to the city ofBaltimore in the UnitedStates, which passed a billin 1994 requiring firmswith contracts with thecity to pay workers a livingwage of $6.10 per hour.Over 120 cities in theUnited States now haveliving wage policies.


4

Calculating the Manchester living wage


This chapter calculates a rate for theManchester living wage. In coming tothis we broadly follow the methodologydeveloped by Donald Hirsh forcalculating living wages outsideLondon (Hirsch, 2011), amending thiswhere required to fit data that areavailable at a Manchester level.

The approach we have taken is a ‘bottom up’ basicliving costs approach, rather than a ‘top down’income distribution approach or (as in London) acombination of the two. We have adopted thisapproach for two reasons. First, average income datafor different standard types of households, which isthe obvious UK dataset to use to undertake anincome distribution approach (and is the dataset usedin the London calculation), is only available at the levelof the North West. Second, the bottom up approachresults in a living wage that reflects local costs ratherthan local pay, which is important as these may notnecessarily be closely linked, particularly in a time ofrapidly rising living costs. However, benchmarkingusing the income distribution approach does providea useful ‘sense check’ for a living wage against locallabour market conditions and is explored briefly at theend of the chapter.

Developing an income requirement

A first order question for a living wage is what kind ofhousehold it should support. A wage that provides areasonable standard of living for a single person maynot be enough to support a larger family. To ensurethat the Manchester living wage provides a wage thatmeets the needs of a significant majority of workinghouseholds we develop an income requirement fornine different types of household: childless singlesand couples; lone parents with one, two and threechildren; and couples with one, two, three and four

children. By using cost of living measures to price anacceptable standard of living for a series of ‘typical’households we can develop a wage that woulddeliver this standard of living for an ‘average’household.

We build up an income requirement based on coststhat accrue for these groups in the following areas:

• housing, including Council Tax;

• transport;

• childcare; and

• all other costs.

For the first three groups it is possible to getacceptable quality data at a Manchester level. For ‘all other costs’ we use data produced by theJoseph Rowntree Foundation (JRF) as part of theirminimum income standard work, reweighted to North West prices. The following sub-sections explore local trends in these data and set out therationale for the figures we have included in the living wage calculation.

Housing costs, including Council Tax

Increases in both house prices and rental costs havebeen a core driver of rising costs for most householdsover the past decade. At the bottom level of thehousing market, stymied supply (alongside increasesin the availability of buy to let mortgages and theattraction of housing as an investment opportunity)have served to both reduce the supply of affordablehousing available to purchase, and increase thedemand for social and private rented properties.Owner occupation is now unaffordable for many ofthe lowest paid, with bottom quartile earnings tobottom quartile house prices of around 1:5 in 2011,up from less than 1:3 in 2002. For this reason weassume that someone earning a living wage will live inrented accommodation and use rental costs as thebasis for our calculation.


While detailed private sector rent trend data are notavailable at a local level, the market nationally hasseen rents driven up both by sharp increases intenant demand, and an enduring shortage of supply,particularly since the recession (Royal Institution ofChartered Surveyors, 2011). In Manchester, theaverage cost per month of renting in the year toDecember 2011 was £527, with a lower quartileaverage monthly rent – assumed to be affordable tolow-earners – of £420. Monthly rates by type ofresidency for the lowest quartile are:

• Room – £251;

• Studio – £323;

• 1 bedroom – £390;

• 2 bedrooms – £435;

• 3 bedrooms – £500; and

• 4 or more bedrooms – £695.

In order to generate Manchester average housingcosts we assume that singles require a bottomquartile one bedroom house and couples require abottom quartile two bedroom house. We assume, asLondon do, that the cheapest housing will be socialhousing and that those who are able to access socialhousing will do so. We assume that lone parents andcouples with one or two children will require a housewith two bedrooms and that lone parents and coupleswith three or four children will require a house withthree bedrooms.

We have sourced private rents data from the ValuationOffice Agency, which provide data for bottom quartilerents to a local level. To get housing association rents,for which only regional data is available from the 2010Housing Finance Survey, we calculated thepercentage difference in price between total NorthWest local authority rents and Greater ManchesterHousing Association rents, then applied this

percentage across the figures for different housingtypes available regionally.

For council tax we take an average of Band D ratesfrom across Manchester.

Transport Costs

Transport costs are also a core component of theexpenditure of low earners in Manchester. Althoughtransport prices rose between 2002 and 2010 interms of fuel prices, bus, metro and rail, only rail andfuel rose by more than wages. In real terms, hourlywages for the bottom decile rose by 3.4 percent whileboth real bus fares and real Metrolink fares fell by 0.5percent and 11.4 percent respectively – in the lattercase due largely to a three year freeze, lifted inJanuary 2012. Rail fares rose by 2.4 percent in realterms, while diesel and petrol rose by 24.5 percentand 25.7 percent respectively.

These transport costs are however merely benchmarks,and the pricing of different routes will clearly havedifferent dynamics and exert different pressures onhouseholds, depending on where they live and workand which transport options are open to them.

For the living wage calculation we have used the priceof a weekly Manchester wide System One Adult BusSaver for each adult in the household (£19.00). Wehave done so on the basis that to achieve a livingwage it is reasonable to expect employees to have to travel to work across the city by public transport.As around 70 percent of passenger commuting inManchester is by bus we have excluded the option of tram and train, which would significantly increasecosts. We have assumed that any children in thehousehold do not need to travel by public transport to school.


Figure 7: Peak transport costs in Manchester compared with bottom decile hourly wages* (nominal)

170

160

150

140

130

120

110

100

90

80

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

BusMetroRailUnleadedDieselWages

Source: Highways Forecasting and Analytical Services, Transport for GreaterManchester (2011); Annual Survey of Hours and Earnings (2012)

*Fares are the peak averages/benchmarks taken by TfGM

159.6158.0

130.0128.2126.3

112.5


Childcare

For those with children, childcare makes up asignificant proportion of household costs. Figuresproduced by Daycare Trust show continued aboveinflation increases in the price of childcare in the UK,with the hourly rate for a child aged under twoincreasing by 5.8 percent in 2012 (Daycare Trust,2012). The London living wage work uses localauthority childcare figures aggregated at a Londonlevel by the Daycare Trust. The non-London livingwage work adopted this approach using figures for allnon-London regions. Rather than use aggregatedregional data, we have taken the cost of childcare inthe City of Manchester for the same measures – thehourly cost of a child minder and the average cost ofan after school club. We have assumed that theparent(s) of the child work for employers that do notoperate childcare voucher salary sacrifice schemes,which would allow them to offset some or all of theirchildcare costs against their pre-tax income.

All other costs

A key part in determining what a living wage shouldbe is deciding what goods and services should beincluded in the calculation of living costs. Clearlythere are some unavoidable and indisputable costsfaced by all households (for instance food, water andheating) but there is some expenditure that, whilstoptional, is for many people central to achieving areasonable quality of life (for instance a TV license oran outing to the cinema). Moreover, even for goodsand services that are unavoidable, a single reasonableprice is not always easily available.

Developing a set of agreed goods and services – andthe amount that should be spent on each – is ahugely time consuming and complex process. Ratherthan build these up from first principles, we use as ourbase national figures produced by the JosephRowntree Foundation (JRF) for their annual ‘minimumincome standard’ appraisal (Hirsch, 2011). Thesefigures are based on what members of the publicthink people need to achieve a socially acceptablestandard of living. JRF describe the minimumstandard as ‘including, but more than just, food,clothes and shelter. It is about having what you needin order to have the opportunities and choicesnecessary to participate in society’, which clearlystrongly complements a living wage approach. Inorder to bring these figures up-to-date and makethem locally relevant we have up-rated them byinflation and adjusted for North West prices. Theheadline costs that make up the minimum incomestandard are set out in table 6.4

There are two notable exclusions that are not factoredinto these calculations. First there is substantialvariation in energy costs faced by households: lowincome families often live in poorly insulated houses(the most expensive to heat) without access to thecheapest energy tariffs (often only available online).Second, and increasingly an issue for the low-paid, isthe cost of servicing (often high-interest) debt, whichcan compound income difficulties for those alreadystruggling. While these are not quantified here, theyshould not escape the concern of policy makers.

4Detailed descriptions of the specific goods and service included under each heading, are available here:http://www.minimumincomestandard.org/budget_summaries.htm [accessed 20th April 2012]


Table 6: Minimum income requirement by group, North West, 2012

Household type Single Couple Lone parent Couple

Number of children 0 0 1(age 0-1)

2 (age 2-4and

primary)

3 (age 2-4,primaryand highschool)

1 (age 0-1)

2 (age 2-4and

primary)

3 (age 2-4,primaryand highschool)

4 (age 0-1,2-4,

primaryand highschool)

Food 46.31 79.57 54.02 75.45 98.42 78.99 111.91 120.66 140.17

Alcohol 4.96 15.70 3.94 3.94 3.94 6.87 6.87 6.87 6.87

Tobacco 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Clothing 8.56 17.21 18.39 27.74 43.47 23.44 32.79 48.52 54.51

Water rates 5.16 6.08 8.08 8.49 9.01 8.08 5.96 9.01 9.01

Household insurances 2.00 1.84 2.23 2.49 2.40 2.47 2.49 2.76 2.76

Fuel 10.51 11.62 19.18 20.63 20.71 20.19 21.59 22.02 23.23

Other housing costs 2.48 4.79 2.30 2.03 2.17 5.26 7.87 9.60 3.39

Household goods 10.99 12.38 18.95 20.85 27.26 18.33 20.12 27.71 31.30

Household services 4.53 7.02 4.01 7.83 10.22 6.24 10.06 12.44 8.62

Personal goods andservices 9.34 17.15 21.65 22.75 29.92 28.78 30.45 37.47 49.25

Social & culturalparticipation 43.71 67.20 55.64 85.85 119.66 78.84 108.56 147.53 158.80

Living costs(excluding Housing,Council Tax, Childcare & Travel)

148.55 240.56 208.39 278.05 367.18 277.49 358.67 444.59 487.91

Adjusted for RPI andNorth West prices 151.27 244.97 212.21 283.15 373.91 282.58 365.25 452.74 496.86


Calculating the living wage

Bringing together these costs gives an annual targetnet income (see table 7). For each household type wehave then calculated an annual wage requirement tothe nearest £500 factoring in deductions (tax andnational insurance) and the main benefits thehousehold may be entitled to (namely, Child TaxCredit, Working Tax Credit, the Childcare element ofWorking Tax Credit, Child Benefit, Housing Benefitand Council Tax benefit) based on the 2012/13 taxyear. We assume that households have no otherincome. To get a wage requirement we have assumedall members of the household work full time (37.5hours per week) for 52 weeks a year. This gives a‘living wage’ for each of the different households.

In order to produce a single living wage forManchester we have then weighted each household’swage requirement based on 2001 Census figures(latest data) for the number of each present inManchester. This results in a living wage of £7.22 forManchester for 2012/13, significantly above thenational minimum wage rate (from 1 October) of £6.19

but broadly in line with the non-London rate of £7.20calculated by the Living Wage Foundation. It is worthnoting, however, that when the Living WageFoundation publishes its 2012 rate in November thisyear it will be based on an updated basket of goods,which, because of changes to the tax and benefitssystem which introduce far steeper taper rates on taxcredits and are less generous in reimbursing parentsfor childcare costs, could result in a living wage higherthan it appears here. However, the rise in the“applied” living wage is capped at 2 percentagepoints above earnings growth (Hirsh, 2011b), as suchthe rate calculated above is likely to undershoot therevised non-London rate when it is released, but notby as much as the policy changes would imply.

In 2011 around 20 percent of workers in Manchester– more than 200,000 people – earned less than thishourly rate. Approximately 90 percent of full-timeworkers met the Manchester living wage, but aroundhalf of part-time workers did not. Without taking intoaccount benefit payments the Manchester living wagewould need to rise to £9.58.


Table 7: Manchester living wage calculations, 2012/13

Single CoupleLoneParent +1

LoneParent +2

LoneParent +3

Couple +1

Couple +2

Couple +3

Couple +4

Requirements

Housing £90.00 £100.38 £66.01 £72.60 £80.14 £66.01 £72.60 £80.14 £80.14

Council Tax £13.80 £18.49 £16.01 £16.01 £16.01 £21.52 £21.52 £21.52 £21.52

Transport £19.00 £38.00 £19.00 £19.00 £19.00 £38.00 £38.00 £38.00 £38.00

Childcare £0.00 £0.00 £134.55 £172.55 £172.55 £134.55 £172.55 £172.55 £238.87

All other costs £151.27 £244.97 £212.21 £283.15 £373.91 £282.58 £365.25 £452.74 £496.86

Total: weekly target net income £274.07 £401.84 £447.77 £563.31 £661.60 £542.66 £669.92 £764.95 £875.38

Annual target net income £14,252 £20,896 £23,284 £29,292 £34,403 £28,218 £34,836 £39,777 £45,520

Annual gross incomerequirement, of which: £17,500 £23,400 £5,500 £7,000 £14,500 £26,000 £33,000 £39,000 £39,000

Income

Tax and NI -£3,068 -£2,424 £0 £0 -£2,108 -£3,596 -£5,836 -£7,756 -£7,756

Child tax credit £0 £0 £3,122 £5,733 £8,334 £3,131 £5,733 £6,005 £10,936

Working tax credit (WTC) £0 £0 £4,502 £4,285 £1,311 £0 £0 £0 £0

Childcare element of WTC £0 £0 £4,739 £6,074 £6,074 £1,487 £49 £0 £5

Child benefit £0 £0 £1,056 £1,752 £2,449 £1,056 £1,752 £2,449 £3,146

Housing benefit £0 £0 £3,432 £3,775 £3,179 £0 £0 £0 £0

Council Tax benefit £0 £0 £832 £832 £528 £0 £0 £0 £0

Hourly wage requirement £8.95 £5.98 £2.81 £3.58 £7.42 £6.65 £8.44 £9.97 £9.97

Calculation Manchester weight 0.34 0.33 0.06 0.03 0.01 0.09 0.09 0.04 0.01

Living wage contribution £3.03 £1.99 £0.16 £0.11 £0.11 £0.61 £0.78 £0.37 £0.07

2012/13 Manchesterliving wage £7.22

5

Costs andbenefits: thepotential impactof a Manchesterliving wage


So far our analysis has shown that notonly have real wages for the poorest inManchester fallen since 2009, but thatthey have experienced long-term andsubstantial increases in the cost ofessential goods and services.Nationally the effect of similarpressures has been well documented.The UK is in the midst of a ‘cost ofliving crisis’ – exacerbated by, butpredating, the recession – and this has been confirmed to also apply toManchester. The calculations in theprevious chapter show that there arehouseholds that, despite working full-time at the minimum wage, are earningless than they need to achieve areasonable quality of life, despite thebenefits and Tax Credits to which theyare entitled.

Few would argue with the sentiment that action needsto be taken to alleviate these pressures. However thequestion this chapter will address is whether payingemployees a single calculated living wage – whichgives weight to different groups according only totheir prevalence not their priority – is the appropriateway to do so. In making this assessment we considerthe costs of the implementation of a living wage, itslikely efficacy in improving the circumstance of thosegroups who are most in need, and other policyoptions which might also be pursued.

Interrogating the living wage calculation

Before looking in detail at the benefits and costs of aliving wage approach, it is useful to pause to examinesome of the issues that emerge from the calculationof the living wage itself. Table 7 in chapter 4 set outthe detailed calculations undertaken to produce asingle living wage for Manchester from which four keyissues arise.

First, the weighting to develop a living wage for an‘average’ household means that some householdtypes benefit more than others. Based on ourcalculations, childless couples, lone parents with oneand two children, and couples with one child wouldall meet their annual income requirements if theyworked full time at the living wage. However, childlesssingles, and couples with two, three or four childrenwould all earn significantly less than their incomerequirement. At the extremes, a couple with threechildren both working full-time and earning a ‘livingwage’ of £7.22 would earn £2.75 an hour short oftheir requirement, whereas a lone parent with onechild would earn £4.41 more than they need.


Second, we assume that all adult members of ahousehold that can work do so full-time and that theywork for 52 weeks a year. Such households are notusually the subject of policy focus as they are, ingeneral, unlikely to be in poverty or experiencesignificant hardship. Table 4 shows that just one intwenty single or couple households in full-time workare in the bottom 25 percent by income after housingcosts, accounting for only 7 percent of the totalbottom 25 percent lowest earners. In contrast, 21percent of couples with only one member working arein the bottom 25 percent of earners. Linked to boththe above points, analysis of the impact of livingwages in seven major US cities has found that nearly75 percent of employees affected by the living wagewere not initially in poverty and more than 40 had totalincomes of at least twice the poverty line (Toikka,Yelowitz and Neveu, 2005).

Thirdly, the living wage provides an hourly wagerequirement; however, the critical issue facing thelowest paid is not low hourly pay per se but lowincome. Differentials in income are driven by acombination of low hourly pay and a low number ofhours worked. In recent years the trend (outlined inchapter 2) has been rising part-time pay but fallinghours worked, which has resulted in this groupslipping away from average annual incomes. Unlessaction is undertaken to ensure that those on lowincomes are able to work more hours, a boost to theirhourly wage is unlikely to be sufficient to move themout of poverty.

Finally, the Manchester living wage is not materiallydifferent to the living wage calculated using a similarmethodology for all regions outside London. This isseemingly a strong endorsement of the validity of thenon-London rate and it may be counterproductive forManchester to promote a different rate to employers,particularly those that operate national pay scales.

With these caveats in mind, the paper now turns to ananalysis of the potential costs and benefits ofintroducing a living wage in Manchester.

Intended and unintended consequences

The most obvious beneficiaries of a living wage policyshould be low paid workers who work for employersthat implement the living wage policy. Workers whoare paid low hourly wages are more likely to be part-time, young and women (Bennett and Lister, 2010)and therefore a living wage would clearly impact uponthese groups. There are then multiple individualbenefits that could derive from this, over and abovethe direct financial impact, with higher wages beingassociated with more stable family life, improvedhealth and well-being, and so on. For instance, Bhatiaand Katz (2002) and Cole et al (2005) found evidencein US cities that living wage ordinances would resultin health improvements for workers for instance.Higher paid workers are also more likely to be offeredtraining at work and progress in their roles leading tofurther positive externalities (Cheung and McKay,2010). Taken together these impacts couldtheoretically lead to a positive spiral of increasedmotivation and increased productivity, leading toincreased investment in staff training, further wagegains and so on. More employers paying living wagescould also encourage unemployed workers to take upwork, as the pay differential with benefits widens.

However, Marsh et al (2010) use standard economictheory to identify two effects that suggest that livingwages may have some negative consequences forthe lowest paid. As the lowest paid are usually alsothe lowest skilled, the first effect of the introduction ofa living wage will be an increase in the cost of usinglow skilled workers. Employers may then substituteaway from these workers towards other inputs (forinstance, higher skilled workers or mechanisation).Second, even if the firm substitutes low pay, lowskilled labour for other inputs, the cost of productionwill rise and, if employers cannot absorb this, then theprice of the good or service they produce will tooneed to rise. This will result in the quantity demandedof the product falling, with the extent to which this isthe case being dependent on the demand elasticity ofthe final product. Ultimately, both effects will reduce


the demand for low skilled labour. Neumark andAdams (2005), compare cities with living wagepolicies with a control group of those that had livingwage campaigns that failed and find some evidenceof this, although the extent to which this transferableis limited due to the small sample sizes used in theirmethodology and the significant differences that existbetween the US and UK living wage approaches.

Marsh et al also highlight that a living wage policy,without legislative backing, will only impact on aproportion of firms in an area (chiefly those in thepublic sector or with public sector contracts),resulting in ‘covered’ and ‘uncovered’ sectors. Whenthis is the case, increased wages in the coveredsector may displace low skilled workers into theuncovered sector – as higher skilled workers getattracted to higher rates of pay in the covered sector– which will depress wages in the uncovered sectormaking the low skilled that the living wage wastargeted at worse off. A living wage policy may thenhave negative impacts on the economically inactiveas, rather than higher wages encourage work, theymay lead to reduced job opportunities or the‘squeezing out’ of workless groups.

The current evidence on the impact of living wages isnot sufficiently developed in the UK to assess theextent to which these theoretical impacts arise inpractice. A reasonably large number of living wageordinances have been operational in the US since themid-1990s so the evidence there is stronger but it isstill patchy. In one of the more complete studies, Bussand Romeo (2006) analyse rates of growth ofemployment and unemployment in a sample of UScities with living wages before and after theyintroduced their living wage ordinances. It finds that atthe macro level the introduction of living wages hasresulted in negative labour market impacts for some

cities, but these represent the exception rather thanthe rule (Buss and Romeo, 2006). Recent researchusing regression modelling techniques that accountfor structural differences between living wage andnon-living wage cities in California finds that livingwage laws there have had no significant impact onemployment or business growth, nor is thereevidence that living wages make cities uncompetitiveby signalling an anti-business sentiment (Lester,2011).

In the UK the evidence that does exist relates thenational minimum wage. When first introduced therewere fears that the minimum wage would significantlyerode the UK’s competitiveness and result in reducedemployment. The extensive body of work that nowexists examining the impact of the national minimumwage suggests that the effect on employment levelshas been marginal or nil and that the policy has raisedearnings for the lowest paid – improvements toproductivity and training have also been identified(Metcalf, 2008). Scare stories about the devastatingimpact of living wage policies on economiccompetitiveness may be just that.

However, while the macro picture is positive, at anindividual level the results are less clear. We havemanaged to identify only one study that looksempirically at the compositional effects on firm levelemployment of living wage ordinances, that by Fairrisand Bujanda (2008). This finds, based on data fromaround 300 firms in Los Angeles, that workers hiredafter the living wage was introduced were generallyolder, more educated, and had previously beenearning higher wages in other employment. Theysuggest that this ‘labour-labour’ substitution offset upto 40 percent of the increase in wages resulting fromthe living wage (Fairris and Bujanda, 2008).


Impact on the public sector

In addition to any benefits accrued by individuals,both local and national Government would benefitfrom more employers paying a living wage, as theamount they have to pay towards in-work benefits (forexample tax credits, housing benefit and so on)reduces and they are able to make savings fromservices that deal with the consequences ofindividuals getting into financial difficulties. However,while this has obvious attractions to Government, it in fact dampens the effectiveness of a living wageapproach. Research in the US has found that thephase out rates of benefit programmes (designed, aswith Tax Credits in the UK, to reduce as salariesincrease), reduce the ability of living wage laws toreduce poverty as increases in salary becomeineffective at raising comprehensive disposableincomes (Toikka, Yelowitz and Neveu, 2005).

In the UK Working Tax credit and Child Tax Credit areboth due to be phased into the Universal Credit from2013. This will still result in central governmentreceiving the benefit (i.e. reduced in work transferpayments) of increased pay, however the UniversalCredit will in many ways blunt the living wageapproach, as higher wages paid by employers will besoaked up by declining benefit entitlements. Thatsaid, for many of the lowest paid, moving away frombeing dependent on benefit payouts may be animportant motivating factor, and it will also shieldthem from any future cut to in-work benefit payments(which were signalled by the Chancellor in the 2012Budget). Moreover, research has found that thesource of an individual’s earnings is extremelyimportant, with earned income correlating withprosperity irrespective of income levels (Berthoud and Bardasi, 2004).

Finally, there are of course the direct wage costs tothose public sector organisations which implementthe living wage. A Manchester living wage policy led

by the public sector would require local agencies tosource funding at a time when their expenditure isextremely constrained, and while provision is beingcurtailed in other areas. Absorbing these costs will bechallenging, however Manchester City Council havesince 2008 shown leadership in tackling low pay andmore recently Oldham Council have adopted a livingwage. Authorities may wish to look at the approachesthese councils have taken – as well as the living wagepolicies in Glasgow, Islington and Lewisham – andcome to a view as to their own spending priorities.The assumption that the public sector should lead theway is perhaps misplaced however, as shown by theLondon living wage where many private sectoremployers have shown a willingness to increasewages and have reported benefits from doing so.

Impact on firms that adopt a living wage

For private sector firms to widely adopt the livingwage on a non-statutory basis then there have to beclear business benefits. The GLA commissioned aninvestigation of the experiences of organisations thathave adopted the London living wage (in terms ofboth benefits and costs) to quantify the businessimpacts. Based on the views of eight living wageemployers surveyed (the small sample size places aconsiderable caveat on these findings), the mostsignificant impact was on reputational benefits, whichseven thought had a significant or slight impact. Theother main impacts noted were improvements inrecruitment and retention of staff, improved workermorale and motivation, and, to a lesser degree,improved productivity (London Economics, 2009).Evidence from the US backs up these findings with,for instance, Fairris (2005) reporting reduced low paidworker attrition rates and a drop in absenteeism inLos Angeles living wage firms, and Howes (2004)finding increased rates of staff retention in homecareproviders in San Francisco.


The GLA research also sought to understand themain barriers and difficulties firms face when decidingwhether to implement the London living wage. Themain barriers identified were difficulties arising fromrenegotiation of employee and contractor contracts,issues relating to the maintenance of pay equivalence(which in some cases led to ‘ripple’ wage increases tomaintain wage differentials), increased wage costs,possible impacts on profits, prices or share price, andensuring that contractors pay the London living wagetoo. Little or no evidence was found on businessperformance: all London living wage employerssurveyed reported no change in sales or turnover, andthe majority saw no change in prices, output or profits.

In sum, the evidence from London and the USsuggests that, while not overwhelming, a businesscase will be evident for some employers based inparticular on improvements to staff recruitment,retention, morale and motivation. For many firms, thepositive reputational benefits and contribution towider social responsibility objectives will provide therationale for adopting a living wage.

The long road to higher pay

Not all firms will be convinced by these argumentshowever – after all, if the positive impacts ofincreasing earnings of the lowest paid are so evident,one would expect firms to be already paying higherwages. Manchester in particular has a challenge inthis regard as many firms in the conurbation areoperating, often successfully, in a ‘low skillequilibrium’. These firms operate business modelsthat are dependent on employing low paid workers toundertake low skilled work (Holden, 2010). Engagingwith these employers on a platform solely focused onincreasing wages is likely to be unsuccessful and amuch wider business support approach is required tosupport them to move to higher levels of productivity.

This raises a second point, which is that a living wagewould not deal with the fundamental cause of low payfor many individuals: the mismatch between the skillspossessed by Manchester’s workforce and theevolving structure of the city’s economy. Researchhas consistently highlighted low levels of skills (usingqualifications as a proxy) and a lack of workexperience as key drivers of low pay (see for instanceKemp et al, 2004 and Longhi and Platt, 2008). While itcould be argued that paying higher wagesencourages employers to invest in the skills of theirworkforce, it is unlikely to have an effect on the scaleneeded, and should not detract from the long-termefforts to raise the skills levels of Manchester’spoorest residents, in order to improve their own lifechances and support the wider economy in anextremely competitive world.

Low wages are of course also a function of payprogression, and low paid entry level jobs do notalways lead to better paid ones (Kemp et al 2004).Rectifying this issue will in part require working withemployers to both increase training and developemployment progression routes. It will also meanproviding high quality careers advice and guidance tolow paid workers on how they can achieve wageprogression both by working up the ‘careers ladder’ inan organisation and, increasingly, through developinga ‘career cluster’ by gaining work experience indifferent organisations on the way to a target job (NewEconomy, forthcoming). An additional challenge willbe persuading the low paid themselves to recognisevalue in training if they do not see it as necessary fortheir role or believe that opportunities for progressionare limited (Keep and James, 2010).


Another way to higher real wages: lower living costs

Based on the evidence presented so far, the net effectof a living wage policy in Manchester is likely to beminimal at the aggregate level. It would boost thequality of life for direct beneficiaries, even if these arenot necessarily the target of the policy. However, aliving wage approach in isolation would neglect acrucial element in boosting real wages: what can bedone in Manchester to lower living costs. While alarge proportion of the costs facing the lowest paidcannot be manipulated easily locally (such as foodprices, clothing costs and so on), some costs can belowered through local action. Seeking to lower costsis also important as inflation is likely to remain abovethe Bank of England’s target for the foreseeable futureresulting in any increases in the wages of the lowestpaid being quickly eroded. In this regard the livingwage approach provides a powerful framework inwhich to assess the varying costs faced by differenthousehold types and design appropriate and targetedpolicy interventions. There are three key areas wherelocal action could have a significant impact.

First, house prices and rental costs have increaseddramatically in recent years, affecting not just thelowest paid but middle and even higher earners. Inaddition, our living wage calculation assumes thatthere is an adequate supply of decent social housingdespite this becoming increasingly scarce. Actionsthat seek to boost the supply of homes – and hencereduce costs – to buy or rent would support the lowpaid to meet their basic needs. Linked to this, actionsto reduce the cost of running existing homes, such asbetter insulation (and hence lower heating costs) arealso important.

Second, transport costs now account for 5 percent ofthe basic weekly spending requirement on averageacross the nine different household types. Forchildless couples this figure is 9.5 percent, forcouples with 1 child it is 7.0 percent, and for singlehouseholds it is 6.9 percent. Changes even at themargins for travel costs can have a real impact. Forinstance in Manchester when child fares rose by 20p(to cover the costs of free travel for older and disabledpassengers), 65 percent of parents said the increasehad impacted on their disposable income and 16percent said it affected their ability to pay foressentials (Greater Manchester Transport ResearchUnit, 2008). Being able to travel cheaply and rapidly towork across Manchester is a core requirement forresidents to be able to access good quality jobs.Currently a four-weekly unlimited use bus pass fortravel on all Stagecoach Manchester routes(principally in the south of the city) costs £44.00compared with £54.90 on Arriva’s Bolton and Wiganroutes and £68.00 for the System One any providerpass. As well as increasing costs for those who haveto travel on multiple operators, this restricts access toemployment for low paid workers in Manchester. Asthe tram system is extended out to more deprivedareas of Manchester, it will be important to pay regardto how multiple costs on multiple modes of transportaffect, and are managed by, the lowest paid.

Finally, a striking finding from the work undertaken inthe previous chapter is the financial difficulty faced bycouples working at or around the minimum wagewhen they have children. While childless couples andlone parents with one or two children wouldtheoretically be able to reach an acceptable standardof living at a rate of pay below the national minimumwage (£5.98, £2.81 and £3.58 respectively), couples


with one child require an hourly wage around 10%above the minimum wage to meet basic costs(£6.65). This hourly wage requirement rises to £8.44for couples with two children and £9.97 for coupleswith either three or four children. The key reason forthis difference is the cost of childcare. While loneparents receive financial support for childcare throughthe childcare element of Working Tax Credit, fewworking couples will be eligible for significant supportwhile still earning enough to cover basic costs. Thissituation is likely to worsen in future years, withforecasts produced by the Social Market Foundation(SMF) suggesting that low-income families willcontribute 62% more for childcare costs (£600 in realterms) in 2015/16 compared to 2006/07. The SMFrecommend the introduction of a national loanscheme, similar to the student loan scheme, to helpparents smooth these costs over a longer period oftime (Shorthouse, Masters and Mulheirn, 2012). Otherpotential solutions could include a scheme similar toLondon’s childcare affordability programme, which isa city-wide subsidy jointly funded with nationalgovernment (SQW, 2009).

The next and final chapter offers conclusions on theissues raised in this paper and offers policyrecommendations for how Manchester can respondto the issue of low pay and rising living costs.

6

Conclusions


Through the lens of assessing the casefor a Manchester living wage, thispaper has explored the rates of payand living costs of the lowest paid inManchester. It has found that the realwages and incomes of the lowest paidin Manchester have fallen dramaticallysince 2009, alongside substantialincreases in the cost of essentialgoods and services.

The result of this ‘cost of living crisis’ is that there arehouseholds that, even if they are able to secure full-time employment at the minimum wage, will earn lessthan they need to achieve a reasonable quality of life,even taking into account the benefits and tax creditsto which they are entitled.

The living wage movement in the UK has beeneffective in raising awareness of low pay andincreasing wages – as a political campaign it has clearlyunited and focused attention on a vital issue. Not onlythat but the movement has been intelligent in itsapproach, and appears to have learnt the lessons ofsimilar campaigns in the US, and avoided many pitfalls.

Based on the experience in the US and London,promoting a Manchester living wage is likely to have apositive impact on wages for some of the lowest paid,with negligible negative economic impacts. However,the impact of Manchester adopting a living wagepolicy to address low pay is, in isolation, not likely tobe sufficient or targeted enough to deal with the acute challenges faced by many at the bottom end of the earnings scale. It is also likely to fall short ofraising annual incomes sufficiently, and fails to tackleon-going rises in costs facing the lowest paid.However this is a measure of the scale of thechallenge and does not diminish the case foradopting a living wage approach.

The evidence presented in this report suggests thatan approach is needed that seeks to both raise theincomes (not just hourly pay) of the lowest paid whilesimultaneously reducing the living costs faced bythese individuals. The following recommendations areprovided to support these twin objectives.


• At the strategic level, Manchester’s approach to improving life chances and tackling poverty and deprivation has, since the adoption of the Greater Manchester Strategy, placed its primary focus on getting more residents into work. It is still the case that the majority of residents experiencing acute poverty live in households with one or more workless members, so this needs to remain as a priority. However, recent dramatic increases in the costs faced by the lowest paid alongside negative wage pressures (both of which are expected to continue) mean that moving into work is no longer sufficient to move out of poverty. Manchester’s strategic approach to improving life chances should therefore place greater weight on increasingthe real incomes of the low paid. For Manchester’s future prosperity it is no longer sufficient just to get more residents into work; the quality of work matters too.

• Ultimately poverty stems from low annual income, which is related to, but not the same as, low hourly pay. Low paid workers working fewer hours on average is a core driver of the income gapbetween them and higher earners. There are multiple reasons for low paid employees working restricted hours – some of which will be voluntary, some involuntary, and some will stem from benefit entitlement restrictions – but it will be important that support is given to part-time employees that want to increase their hours, either at their existing employer or through an additional job. This supportcould be funded through a community budget approach that captures the financial savings that arise from reduced Tax Credit and other benefit payments. As employers paying higher wages would result in cost savings to Government, this approach could be linked to a living wage policy. The introduction of Universal Credit from 2013 should provide the framework through which this can be delivered.

• Low pay also stems from low qualification levels and a lack of relevant work experience, which feeds into poor job and pay progression for those in work. Maintaining a focus on improving the skills of low paid staff, and supporting more employers to utilise these skills, will be important for achieving increased wages, as will other interventions to support job and pay progression. However, it should be recognised that for many employees – particularly those working for a ‘low skills equilibrium’ firms – the only way to achieve higher pay will be to move to another employer. Providing high-quality careers advice and guidance that supports residents to progress in employment (or move employer) will be vital.

• More employers choosing to pay a living wage is one way to ensure that work pays for more Manchester residents. The fact that the calculations in this report show that a Manchester living wage would not be materially different than the living wage outside London indicate that the national rate outside London for a living wage is sufficient for Manchester, and that there is no need to independently develop a Manchester-specific living wage. Living costs in Manchester do not justify a rate over and above that of national rate outside London calculated by the Living Wage Foundation. The non-London living wage rate for 2012 will be released in November and this research has shown that this is the rate which Manchester’s employers should consider paying their low-paid staff.


• If public sector authorities or private sector firms dochoose to adopt a living wage they should seek to implement it in such a way that it minimises the chance of displacement and targets those most at risk at experiencing in-work poverty. This could include simultaneously adopting recruitment practices that promote the employment of low skilled workers for example. If paying a full living wage rate is not possible for either public or privatesector employers, this should not deter employers from increasing wages by a smaller increment, and aspiring to – over the longer term – pay a living wage. New Economy should support employers to make informed decisions on rates of pay, including paying living wages, by regularly producing, and making freely available on its website, information on trends for the cost of living in Manchester.

• There is also an important but under analysed concurrent policy that, as well as looking to improve wages, Manchester should focus on lowering the cost of living for the lowest paid. This has the advantage of being targeted at those that most require support, avoiding the bluntness of a living wage approach. The main local actions Manchester could take are as follows.

- Developing approaches to increase the supply, and cost, of affordable housing, for owner occupation, private rent and social rent. Actions that reduce the running costs of the existing housing stock – for instance improved insulation or electricity self generation – should also be prioritised.

- Exploring ways to ensure that the lowest paid have affordable access to key employment sites across the conurbation.

- Exploring alternative methods of financing childcare, such as a mortgage-like childcare loanscheme to allow residents with children to spread a major cost over a longer period of time,or through city-wide subsidy, jointly funded by national government (as in London’s childcare affordability programme).

• Finally, the net result for many residents of stagnantincomes and rising costs will, unfortunately, be thatthey slip into debt. Maintaining sufficient debt advice and support services will be important to ensure that such debt issues do not become chronic. Supporting access to ‘fair’ credit – for instance, by encouraging the development of local banks and credit unions – will help residents avoid some of the worse problems associated with debt.


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New Economy Working Paper, ‘Pay up? Living costs and the living wage in Manchester'

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