Is today’s minimum wage rise the calm before the storm?

The next few years will be virgin territory on low pay and minimum wages

Money 3


It’s a cliché but if a week is a long time in politics, the seven months since the announcement of today’s increase in the National Minimum Wage (NMW) feels like an eternity. Back in March, the announcement that the minimum wage would rise by 20p to £6.70 an hour felt a little cautious given it was the same 3 per cent bump as the previous year, despite the economy appearing to be in better health. It seems the chancellor shared that impression.

Fast forward to today’s increase, and though it shouldn’t be sniffed at – it directly boosts the wages of 1.4 million workers – it now looks more like the calm before the storm. From next April, the new ‘National Living Wage’ (NLW) will see the UK’s wage floor embark on a new phase of much faster rises.

Today’s increase is nonetheless a useful opportunity to evaluate how the NMW’s role has changed since its introduction and what lessons can be learned to equip us for the next few years.

Findings from the Resolution Foundation’s forthcoming Low Pay Britain report illustrate how the minimum wage’s impact has grown since 1999. Just after its introduction, only one in every 60 employees earned at or below the NMW. By last year, it had risen to one in 20.

That is due in part to a serious ratcheting up of the NMW’s value. An intentionally-low initial rate coupled with analysis that suggested a higher wage floor was affordable has meant the NMW has risen faster than the wages of typical workers. The chancellor’s new wage floor takes that ambition to new levels. We estimate that one in nine workers will gain directly from the NLW in 2020, when its value should be over £9 an hour.

The first question this raises is whether there will be negative employment effects. The OBR has projected that 60,000 jobs will be lost as a result, while our analysis finds that in most industries the policy will add less than 1 per cent to wage bills.

That doesn’t mean we can be complacent about its effects – the pressures will be felt more in low-paying sectors like hospitality and social care – but it does underline that the NLW’s effect on jobs shouldn’t be the only concern as the policy is brought in.

The minimum wage has evolved from being an absolute minimum for a small minority of workers to something of a ‘going rate’ in some industries. The question of progression off the wage floor is more important than ever. Some wage compression will be inevitable; it’s one of the ways employers have dealt with the higher labour costs brought by the NMW.

But because the remit given to the Low Pay Commission – the body tasked with recommending the NMW’s rate – focused on the minimum wage’s impact on employment, less attention was given to the consequences of more and more workers being bunched together at the bottom rung.

We know that only about one in four workers currently manage to escape low pay over a decade. The fear is that without an emphasis on opportunities to climb the pay ladder, the NLW may worsen that situation.

The next few years will be virgin territory on low pay and minimum wages. What’s needed is a detailed vision for how the NLW will be implemented successfully.

That should go beyond minimising the impact on low-paid jobs to helping the people working in those roles to move onto higher wages over time. A greater emphasis on skills, apprenticeships and training will be crucial to make sure the National Living Wage doesn’t become a wage for life.

Conor D’Arcy is a policy analyist at the Resolution Foundation

4 Responses to “Is today’s minimum wage rise the calm before the storm?”

  1. stevep

    It`s not the amount of money one earns that matters. It`s how much you can buy with it, what you can buy and the effect it has on peoples lives.

    That calls into account the whole national economy and what and who it is structured to represent.

    For example, the cost of consumer goods from less developed and regulated far-east economies are relatively cheap, but the cost of buying a home in the UK is expensive. Which is more important?

    Why is land in the UK so expensive? This is a question that rarely gets asked and has it`s origins in history and the general economy and who benefits from it.

    The UK economy of the last 35 or so years has been skewed and manipulated to benefit the wealthy few, with “market forces” used as an excuse to ensure the vast majority of us have to strive mightily to achieve little, while at the same time the same excuse is used to feather the nests of the wealthy and ensure they become wealthier.

    Simplified, the economy is just a cake. Do we slice nine-tenths of it so the greedy few can gorge their faces whilst others face going hungry?

    Or do we slice it so that it is shared relatively equally, so that all of us can enjoy it?

    This is the old dilemma, made even more relevant today after the banking crash of 2007/8 and the various measures proposed to deal with the aftermath.

    Sadly, we are seeing a Tory government dedicated to making nurses, cleaners, shop workers, the disabled, benefit claimants etc. pay for something they weren’t responsible for. Whilst simultaneously giving large handouts to high tax earners and inheritance tax beneficiaries.

    The economy has to be rebalanced to ensure that the wealth we all create for our country gets used to benefit everyone who strives hard to earn a living.

    Better wages are one thing, but not if their value is soon wiped out by inflation. Restraint also has a part to play.

    Are cheap foreign consumers goods more important than a reasonably-priced rented or owned home? Are they more important than a good, steady job, The NHS, our social services, pensions etc.
    I would say not.
    The Tories argue that to have all these things, you first have to have a good economy. True. But it can and should be argued that their version of how to run our economy is failing and better, fairer alternatives are available.
    This is what Jeremy Corbyn and the resurgent Labour Party are arguing.
    They are correct.

  2. TomSacold

    Uncontrolled immigration is the root cause of low wages in the UK

  3. Booksurfer

    The national minimum wage has hardly been “racheted up” if it had kept pace with the FTSE 100 CEO salaries since 1999, it would now stand at more than £18,89 per hour instead of £6.70 per hour. Workers under the age of 21 don’t even get that much.

  4. Elaine Heywood

    It seems to me that the government have shifted their responsibillties to the working classes to the employers in the hope that when the new higher pay comes into affect next year that the companies do not reduce their hours of work especially to the level where they are either more worse off than they are now. Further more what happens to people who work for smaller companies that decide it is no longer viable to do business in this country and take their business out of Britain altogether.

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