I’m really glad to see Ed talking so much about the Living Wage in his speech.
From the NPEN ebook (page 44):
In the 1920s much of Labour’s economic thinking was rooted in
theories of under-consumption. The argument was that as one
becomes wealthier, one tends to save a greater proportion of one’s
income; so that vast disparities in wealth lead to too much saving in
the economy as a whole, and not enough demand. Social liberal and
liberal socialist thinkers such as J.A Hobson, E.F Wise and J.
Strachey, associated with the Independent Labour Party, made the
case for a more equal distribution of income not only on moral
grounds, but also on economic grounds. A redistribution of the
economy’s wealth towards the working class would lead to higher
consumption and hence higher employment.
This insight still holds true. As we argued at the beginning of this
e-book, the impact of rising inequality has been masked for the past
three decades by increased borrowing by those further down the
income scale. But increased personal indebtedness has proved
unsustainable, and, given this difficulty, if living standards are to be
maintained a solution will have to be found in greater wealth
equality. Government intervention will be required – whether
through increasing the minimum wage or using the power of public
sector procurement to enforce a living wage – as will changes in the
tax system to reduce taxes on low earners.