Philip Whiteley's Blog

August 5, 2013

Why does the Left promote poverty pay?

Filed under: Uncategorized — felipewh @ 11:56 am

With the rise of zero-hours contracts, and campaigns for a living wage, it is distressing that so many wages are low, but heartening that living standards are at least becoming a political issue.

Some of the most vociferous campaigners, however, are unwittingly undermining their own case, by exaggerating the business benefits of low wages. The Guardian-Observer, for example, the leading centre-left news journal in the UK, gave the issue considerable coverage on 28th July, with news coverage and letter-writers angrily denouncing the ‘scandal’ of low pay. Some of the contributors, however, repeated the common error of assuming that wage costs = employment costs, and that it’s in the interests of the business to keep wages at a minimum.

I duly submitted a letter for publication pointing out this error, which unsurprisingly went unpublished. A full text is below. If you care at all about low wages – and about the cause of low wages – please publicise this.

Low pay is a perfectly avoidable scandal

I do despair when I come across Observer readers and trade unionists who enthusiastically promote low wages in the private sector. Many of your correspondents (Low pay is not only a scandal it disenfranchises the young, 28 July 2013), repeat the common assumption that low pay maximises profits. SJ Closs, for example, argues that the ‘only way’ a private company can reduce its costs is to reduce wage and benefit levels.

It turns out, however, that this is not true. The direct cost of employing people is only a part of total employment costs, and is often dwarfed by factors such as poor skills, weak leadership and low engagement.

After 15 years of writing and researching on the subject, I have come to the conclusion that the cultural belief in low wages as a commercial priority has three main culprits:

  1. Domination of accountancy. This leads to the false equation that wage costs = employment costs.
  2. Right-wing economic theory. Milton Friedman urged a ‘costs-based’ approach to management, neglecting matters such as employee engagement and skills.
  3. Left-wing economic theory. Karl Marx’s surplus value is the same zero-sum calculation as Friedman’s. It finds its contemporary shape in trade unions’ ‘social dumping’ argument, which also actively promotes low wages in the profit-making sector.

Neither Marx nor Friedman based their ideas on what actually happens in organizations, where some of the most ethical employers (WL Gore, John Lewis Partnership etc) are also some of the most successful.

Low pay is not just a scandal, but a perfectly avoidable one, created by centuries of bean-counting, Marxism and neo-liberalism. It has all been a terrible mistake.


Philip Whiteley

  • Our case study in New Normal Radical Shift, on how a living wage helped productivity and service standards for Marks & Spencer suppliers in Bangladesh, can be found on this link.

1 Comment »

  1. […] of the beliefs, on which I have written at length, (see also this blog) is that the wage cost is the sole or dominant part of the employment cost. In reality, it is […]

    Pingback by Evidence is not enough | Philip Whiteley's Blog — August 26, 2014 @ 3:35 pm | Reply

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