Thursday, 20 November 2014

HOW TO EARN £90,000 A YEAR MAKING SANDWICHES WHILE SAVING THE NHS



Plans by multinational food processing company Greencore to recruit overseas for the workers to staff a new sandwich making factory in Northampton provoked more questions than answers last week, not least the Daily Mail headline “Is there no one left in Britain who can make a sandwich?” Of the 8,000 people unemployed in the city, it seemed safe to assume that enough of them probably could.

One question not asked, however, is whether that would be a good use of their energy and time. After all, commercial sandwich making displaces, rather than creates, economic activity. People have to eat, and the maximum value comes from eating the right combination and quantity of food to stay satisfied and healthy. It is to be hoped that people eating Greencore’s sandwiches have chosen them in preference to something else, rather than merely eating more. For the economy as a whole, therefore, its a zero sum game.

Of £3 is spent on a sandwich in a supermarket, typically about £1 goes to the shop, with something for the lorry and driver to get it there, something for the factory workers, something for Greencore’s management and overheads, something for its shareholders, something (hopefully) for the taxman and something for the sandwiches that go out of date and get thrown away. Whatever’s left pays for the ingredients (included in which is the price of getting the ingredients to the factory in the first place). If it’s is as much as a quarter of the shop price, on average, it would be a surprise.

Constructing a homemade sandwich, therefore, saves £2.25 for five minute’s work. That’s £27 per hour out of taxed income, or over £90,000 a year gross for a higher rate taxpayer. At that rate it’s safe to assume that most people aren’t buying shop sandwiches because their time is too valuable. 99% of us would be much better off taking five minutes unpaid leave from our work.

People buy sandwiches because it is convenient. When amounts are small they may not notice the price of that convenience, which suggests that this spending comes out of cash they don’t otherwise need. Cumulatively, however, the sums are considerable: £2.25 each working day is about £750 a year of gross income for a basic rate taxpayer - enough to pay for a week and a half of extra time off at the median hourly wage.

In macroeconomic terms the function of a sandwich factory is to keep people working to pay for their sandwiches, thus recycling their surplus cash towards people who need it. In political parlance it “creates jobs”, which allow people to participate in the economy who otherwise would not. That model is vulnerable, however, when the labour market can so easily expand. If the factory pulls in new workers, rather than using the ones who are already in the country, the problem gets worse, not better. Low paid workers receive state benefits as well as the unemployed, so the immediate cost to society goes up, not down.

Whether a sandwich factory is ultimately a cost or a benefit to society depends on how you measure it. GDP rises when more sandwiches, or more expensive sandwiches, are sold. Company profitability should also improve, creating the impression that “UKplc” has done well out of this investment. But something is still missing. Work that people would gain £27 an hour for if they did it themselves is generating a string of jobs that pay far too little to sustain life. Could that money be put to better use?

According to the British Sandwich Association, the U.K. market for bought sandwiches is worth £7.25 billion. If a quarter of that is ingredients, that leaves £5.5 billion, a sum that would go a long way towards meeting the additional funding that the NHS is said to require over the next five years. People buy, on average, about one sandwich each every week. If everyone made that extra sandwich, might that save the NHS?

Arguably, it could, but not in the obvious way of channeling more cash into its coffers. The time people spend making their own sandwiches is the best-paid five minutes of their day because it is totally productive, unburdened by overheads such as premises, shareholder profit, manufacturing plant, professional advisors, corporate management, transport, packaging, advertising and marketing costs.

This principle applies to many things, including healthcare. The biggest challenge facing the NHS is not a shortage of doctors or expensive kit, but long term conditions arising from old age and lifestyle factors such as poor diet, stress and smoking related illness. Many of these are related to poverty and/or over-work. It would be far more cost effective to buy people time to look after themselves better and take care of each other than for them to stress themselves out earning money to pay taxes to pay the NHS to do it for them.

Instead of struggling to find new jobs for all those redundant sandwich makers, therefore, the most beneficial solution is to spread the extra free time around the working population to improve the quality of their health and lives. To achieve this, two things are needed. The first is to move on from the idea of benefits as charity to the economically inactive. In their place should come a form of universal, basic wage that acknowledges everybody’s capacity to contribute, whether paid or not. The second is to measure the value of the unpaid work that promotes human wellbeing - to condemn GDP to the museum of mid-20th century curiosities and replace it with something that prioritises the human value of all work and activity. For this, the Genuine Progress Indicator is a good place to start.

This article first appeared on Huffington Post

Wednesday, 5 November 2014

THE LIVING WAGE: NOT QUITE ALL THAT IT SEEMS?

The Living Wage Foundation has made remarkable progress over 15 years, and in Living Wage Week, when new rates for 2014-15 are announced, it might seem churlish to carp at the detail. At £7.85 outside London the new rate is 20% higher that the statutory minimum, while the London rate of £9.15 is a substantial 41% higher. At a time when average real wages in the economy (adjusted for inflation) continue to fall, the living wage movement is a lone bright light in the generally gloomy outlook for low-wage employees.

Those headline figures, however, are not quite all they seem. The report setting the level outside London says that a wage reflecting “actual minimum living costs” would be £9.20, (up from £9.08 in 2013). The calculation, however, requires a cap of 2% above average pay rises, the rationale for which is worth quoting. “If the income needed to sustain a minimum acceptable standard of living rises much faster than average earnings, there will be limits to how far it is acceptable for employers to increase wages for the lowest earners to meet their increased needs.”

It turns out, therefore, that the Living Wage is not a living wage - not outside London, at least - and has not been so for several years. In order to become so it would need to rise by another 17%. It has been kept down because it might not be acceptable for employers to increase the wages of the lowest paid disproportionately. To put that another way, people who do not have what the report calls “an income needed to sustain a minimum acceptable standard of living” should not receive one in case people who already do have such an income feel hard done by in not getting an equivalent rise.

The Living Wage for London is calculated quite separately to that for the rest of the country, and is not subject to a formal cap. In combining, however, basic living costs with existing average incomes, its calculation, too, contains a stabilising factor that ensures that the Living Wage does not rise too fast.

It is only because the national minimum wage is so grotesquely low that the Living Wage can be seen as generous. That “minimum acceptable standard of living” - the one that requires £9.20 per hour outside London, not the actual rate of £7.85 nor the minimum wage of £6.50 - is still rock bottom, and even so it depends upon some critical assumptions. Not least of these is that everyone works full time, which, in an age of zero hours contracts, is optimistic. It also assumes that people with children have access to social housing (at social rents), which many do not. Because real circumstances vary so greatly, the report says the figure is “a benchmark which nobody should have to be below, rather, than necessarily something that will meet every household’s needs.”

Explore the underlying data and other issues arise. The Minimum Income Standard upon which the Living Wage outside London is based relies upon prices at large chain stores and supermarkets, few - if any - of whom pay the Living Wage to all of their staff. Life on the Living Wage, therefore, is dependent upon retail, transport and processing activity, much of which may well be paid below that rate. And this, of course, is before the pay and conditions of workers in low wage producer countries is considered. People on the Living Wage are not expected to pay a premium to ensure that the goods that they buy are made by workers who are not exploited.

As a director of a company that pays the Living Wage, I find the detail sobering, to say the least. I foresee some difficult conversations ahead with my management colleagues. The idea that an employer should take credit for paying the minimum that people need to live on is itself questionable. Any minimum should be a starting point, rather than a target, but employers have been encouraged to treat the Living Wage as something to aim for, and to congratulate themselves when they achieve it. To discover that this “ethical” pay rate is actually much less than people need to live on calls into question the living wage approach.

That approach is encapsulated on the Living Wage Foundation website, which headlines the statement: “We believe that that work should be the surest way out of poverty”. The intention is wholly positive. Work creates wealth, and people should indeed retain enough of the value of their work to avoid poverty. In a modern economy, however, manufacturing and process work is increasingly mechanised, requiring fewer workers for the quantity of wealth produced. When more is produced by fewer people, wealth creation of this sort becomes a function of capital rather than of labour.

Society has not caught up with this development. It needs to find wholehearted, deliberate rather than grudging, ways of distributing that wealth to the people who need it. One solution is to acknowledge that a great deal of the most important work that people do is unpaid. This is the work that people do when they look after one another - work such as homemaking, catering, childcare, care of the sick and elderly - the sort of work that nurtures human relationships and knits the fundamental social fabric in which people flourish.

The idea that an entitlement to participate in society’s wealth can only arise through paid work has caused these caring activities to be monetised on a vast scale. Examples include industrial food processing (instead of home cooking), fast food, paid childcare and social care, all of which operate on low wages. Paying people to go to work so that they can pay other people to do their caring for them is a good way of generating GDP (which takes no account of unpaid work) but is highly inefficient in terms of human wellbeing. This is because the value of care increases with the time given to it, whereas monetised care has to be done as quickly and cheaply as possible.

While the economy provides a trade off between decent wages and the rate of employment, working people will continue to be the losers. Higher wages in the economy may lead to lower levels of paid employment, but if they encourage investment in manufacturing and process work, so that more can be produced by fewer, this is not, of itself, a bad thing. The challenge then is to distribute that wealth in a way that encourages the production of as much as possible of social and caring wealth, including that which is unpaid.

If, as increasingly seems possible, average wages continue to stagnate, the Living Wage with its 2% cap may struggle to catch up with its true level. In this case the Living Wage Foundation may need to rethink its strategy. Everybody requires the means to live, but paid work for all might not be the best way of achieving this. Is it time, perhaps, to think seriously about the Basic Income, and the autonomy it gives people over the use of their time to produce wealth in the most socially productive way?

An edited version of this article first appeared in The Independent