John Hood: Are cost-of-living payments more effective than pay rises?

John hood - living wage foundation

In these incredibly unprecedented times, any way employers are looking to support workers is positive. However, our focus, of course, is much more on the side of pay rises, rather than ad-hoc bonus payments.

There are a few reasons for this, one of which is that our campaign at the Living Wage Foundation is not just about wages increasing year-on-year, but increasing to cover the costs of living, based on the best data. It is hard to see how a one-off payment can bake in that methodology, which gives both employers and their staff the reassurance that wages will cover the cost of living.

Another factor is the long-term nature of a pay rise. A one-off payment is just that, and looking at inflation, the issues facing the workforce are not going to go away tomorrow, or even next year. A payment to address rising costs now is all well and good, but if that is not forthcoming next year, and wages have not moved, people are going to struggle as living costs continue to rise.

That is one of the driving forces behind our campaign: that a living wage must meet people’s everyday needs, and continue to meet those needs as they change year-on-year.

Some might argue that a one-off payment is easier to plan for and afford than a long-term commitment to raising wages in an uncertain economic environment. However, one of the things you hear from living wage employers is how their commitment has, in fact, supported long-term business planning.

This is in addition to the other massive benefits of paying the living wage, which employers will feel particularly strongly over the next few years, including the retention and recruitment of staff in a very competitive market. Providing a guarantee that pay will meet living costs is going to be an incredibly important incentive, and one that speaks to the internal culture and mindset of the business. It also impacts on the long-term health and productivity of the workforce.

Businesses benefit from better paid employees, particularly when otherwise those employees might be struggling to keep their heads above water during this period.

There might be some false perspectives that a one-off bonus is more manageable compared with the cost of a long-term commitment to wage inflation, but the positive benefits are clear.

Any employer that is taking much-needed action to support its employees during the cost-of-living crisis should be applauded, but ultimately, a real living wage is the baseline. Ad-hoc bonus payments may work in tandem with a living wage, but paying a salary that meets people’s everyday needs will lock in the benefits, both for staff and for businesses.

John Hood is head of communications at the Living Wage Foundation