Last week, the Chartered Institute for Personnel and Development (CIPD) issued a report warning that the decline in pay rises would not be reversed until there is a substantial improvement in the UK’s poor productivity record.

This follows the Chancellor’s recommendation that the minimum wage should be increased from £6.31 to £7, which led to many business groups hitting out at the idea – saying that the rise is unaffordable and could cost jobs.

It is interesting that CIPD (whose origins are closely linked to the development of corporate social responsibility) is putting forward this view. Traditionally there were three main social responsibilities of business:

1. To provide goods and services that society wanted;

2. To treat their employees well, and

3. To pay their taxes.

The second and third appear to have been overlooked in recent times.

To look at this issue from a purely economic perspective is to ignore an important tenet of any civilized society – that is: “A society is judged by how it treats its most vulnerable citizens.” By its own admission, the government’s target of ending child poverty by 2020 will “in all likelihood be missed by a considerable margin” (according to Social Mobility and Child Poverty Commission chief Alan Milburn) – leaving as many as two million children in poverty. The paucity of the wage rise suggested by the Chancellor, and the overreaction of business groups to it, is also a return to the Edwardian approach of blaming behavioural factors for poverty, rather than underlying structural problems.

Poverty is a trap that is very difficult to escape – and shows such as Benefits Street (which give the impression of everyone in poverty being alcoholics and drug users) only perpetuate mistruths. For example, 35% of children in Birmingham are classified as living in poverty but two-thirds have at least one parent in work, less than 3% of families include an alcoholic parent and under 1% have a drug-dependent one.

That only underlines that it is working parents who are suffering in the “race to the bottom” in wages. As responsible organisations, shouldn’t employers be doing all they can to ensure that their employees are being paid enough to pull themselves out of poverty? A huge step in the right direction would be the adoption of the living wage.

However, if the argument of “doing the right thing” is not enough, evidence suggests that employers paying the living wage (£8.80 in London, £7.65 elsewhere) are seeing important business benefits. These include significant reductions in absenteeism, turnover and subsequent recruitment and training costs, together with a marked increase in quality of both the employees and the work they undertake. Paying contract cleaners a living wage at Barclays shows a retention rate of 92% versus an industry average of 35%. KPMG (also a supporter of the living wage) argues that the business benefits are such that “for many businesses, paying the living wage need not actually cost any more”.

As such, the living wage can benefit employers as well as employees.

Carole Parkes is director of social responsibility and sustainability at Aston University, and a Fellow of CIPD

Aston University is a supporter of the living wage