Duncan’s Economic Blog

Living Wage

Posted in Uncategorized by duncanseconomicblog on September 28, 2010

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.

 

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