Introduction

A living wage is a concept that overlays a market transaction with a social meaning. At one level, a wage is simply the negotiated price attached to the selling of labour by an employee to an employer – part of an agreed exchange like the price paid for eggs or automobiles. Yet the notion of a “living” wage reminds us of a social aspect of this transaction – whether it allows employees and their dependants to reach an adequate standard of living.

The price of labour is also of interest to society because it can reflect the division of economic power. The shares of national income that accrue to labour and to capital, as well as the distribution of wages between higher and lower paid workers, have varied considerably over time. Classical economic theory says that these shares will be determined by the laws of supply and demand, with the price of various “factors of production” (land, labour and capital) partly reflecting their relative scarcity. In practice, they are also affected by a host of imperfections in markets, including unequal negotiating positions of different parties. In some cases, such as a well-organized trade union threatening to call a strike, this may potentially favour workers; in others, such as boardroom executives setting the pay of their peers or distributing profits to favour the better-off, it may help divert resources to managers or to shareholders.

Ever since the advent of wage labour, therefore, two fundamental questions have arisen for ordinary employees: are wages fair, and are they enough for a worker to subsist? These questions overlap, but are not identical. The issue of fairness may relate to whether a wage reflects the true value of a worker’s labour, a difficult to assess, somewhat abstract concept. A more concrete issue is whether the wage is enough to subsist at an acceptable level.

A living wage is one that is adequate for a worker to live on. This is the core concept behind a living wage, although it immediately raises a host of issues including what we mean by adequate, how many hours someone should have to work and the extent to which the wage should cover dependants – issues that will be addressed in this book.