Readers of a certain age will remember the children's TV series, Chigley. At the end of each episode, workers would leave the factory to dance in Lord Belborough's garden. All conflicts were thus ended, and there was happy harmony between aristocrats, factory owners and workers.
Businesses which have introduced it tell us that it saves them money.
In reduced turnover of staff.
And lower sickness absence...
So it makes business sense.
And here's David with Dave Prentis:
Paying the living wage cuts absenteeism and labour turnover and raises productivity.
This is not so much "pony politics" as Chigley politics - something that, like Lord Belborough's organ, makes every happy.
This the fallacy of composition. It's perfectly likely that if one or two firms pay higher wages than their rivals they'll attract more motivated staff and enjoy lower staff turnover than their rivals. But these advantages would disappear if all firms pay reasonable wages.And it's possible that the higher labour costs would lead - maybe marginally - to fewer jobs and shorter hours. Efficiency wage theory, remember, is a theory of unemployment.
You might reply here that higher wages would boost demand as workers spent their higher wages. Not necessarily, For one thing - as Ed nearly said - workers would lose around 50p in lower tax credits and suchlike for each £1 of pay rise, so to some extent paying a living wage is partly a form of fiscal tightening. And for another, it's possible that firms won't react passively to higher costs by running down cashpiles, but might instead cut spending on jobs or investment.
I fear, then, that the Milibands are doing what Kristian calls motivated reasoning - they want to believe that something that is morally desirable is also economically efficient.
Such a motivation, however, doesn't arise from the particularities of the living wage. Instead, it's a product of social democratic ideology. The defining feature of social democracy is that there are some positive-sum policies that benefit both capitalists and workers.
Sometimes, this is true. For example, in the 50s and 60s the full employment policies that benefited workers also delivered high profit rates.
But just because something is true sometimes doesn't mean it is always true. Here's an alternative possibility:
Factors such as globalization and (power-biased) technical change have massively depressed demand in the west for low-skilled workers, leading to unemployment and low wages.Policies to rectify this impose costs upon others. These might take the form of higher taxes if the low-skilled get in-work benefits. Or they might take the form of lower profit margins, if a living wage is imposed upon firms. And capitalists' investment function might well be such that lower profit margins lead to lower investment. In this sense, policies to help the low-skilled might well be zero-sum ones, or perhaps even negative-sum ones.
Such a view flatly rejects the Miliband's Chigley politics. But I suspect there's some truth in it. And if there is, then we cannot escape the reality that there is a class conflict.