Is it a happy birthday for National Minimum Wage?


by Donna Gardiner

Today, (Tuesday, 1st April), is the 15th anniversary of the introduction of the National Minimum Wage in the UK.  The anniversary occurs during the second week of the Trade Union Congress’ (TUCs’) ‘Fair Pay Fortnight’, which aims to raise awareness of the problem associated with low pay, in-work poverty and the increasing cost of living in the UK.

Last month, the government agreed to raise the NMW by 19p to £6.50 per hour, in line with the annual recommendations of the Low Pay Commission. The higher rate will be implemented from October 2014, and the government estimates that the change will benefit around 1 million people by up to £355 per year.

However, despite this rise, the NMW will remain considerably lower than the Organisation for Economic Co-operation and Development (OECD) definition of low pay – which is two-thirds of the median full-time hourly wage or less. Using this measure, 21 per cent of employees in the UK are low-paid.

The new rate is also well below the living wage, which is calculated according to the basic cost of living in the UK.  The current living wage is £8.80 per hour in London, and £7.65 in the rest of the country.

Five million people across the UK, or one in five, are paid below the living wage.  However, there is considerable variation in rates of pay across different areas of the UK – as the TUC found in a recent analysis of official statistics. In some areas, nearly 50 per cent of jobs pay less than the living wage – as illustrated in ‘heatmap’ produced by Touchstone.

Last month, the think-tank Resolution Foundation published the findings of a review into how the NMW could be used to tackle the high incidence of low pay in the UK. The review was led by Professor Sir George Bain – who chaired the Low Pay Commission when the NMW was introduced 15 years ago.

The review made a number of recommendations to improve the NMW, including setting government targets to reduce the share of employees earning below two-thirds of the hourly median wage from 21 per cent to 17 per cent. It also suggested analysis of which sectors of the economy could afford to pay employees more than the minimum wage, and the introduction of a higher-rate non-mandatory minimum wage for London.

Professor Bain recently criticised the NMW, suggesting that it had become a “blunt instrument” which was in need of reform. He also suggested that although there are some sectors of the UK economy, such as retail and social care, which would be unable to pay a living wage without increasing unemployment, there is evidence that a number of sectors within the UK economy would be capable of paying employees more than the minimum wage.

A primary concern about increasing the minimum wage is the negative effect it may have on businesses and the subsequent impacts of this upon employees. However, three pieces of recent research found no evidence of the negative effect of the minimum wage upon the pay and benefits of employees.

For example, the University of Bath found that the minimum wage had little effect on levels of non-basic pay, the use of temporary contracts or the provision of pensions by employers, and had no significant effect on the use of various types of flexible employment arrangements, such as zero hours contracts.

Similarly, the research by the National Institute of Economic and Social Research (NIESR) concluded that recent increases in the use of flexible employment arrangements by employers were largely due to factors other than the NMW, and in terms of employee benefits, research by Incomes Data Services found that nine out of ten employers stated that the minimum wage had not caused them to make any changes to benefit provision.

So, we at the Knowledge Exchange would like to congratulate the NMW on its 15th anniversary, and hope that it will continue to tackle low pay and in-work poverty in the years ahead.


Articles referred to in this blog  (please note  you must be a member to view them):

An assessment of the changing use of flexible employment and implications for the national minimum wage, including compliance

Beyond the wage: changes in employment and compensation patterns in response to the national minimum wage

More than a minimum: the Resolution Foundation review of the future of the national minimum wage – final report

National Minimum Wage: Low Pay Commission report (Cm 8816)

Pay, non-pay benefits, young people and the minimum wage

The influence of the national minimum wage on pay settlements in Britain

The ‘living wage’, low pay and in work poverty: rethinking the relationships, IN Critical Social Policy, Vol 34 No 1 Feb 2014, pp46-65

Working for poverty: the scale of the problem of low pay and working poverty in the UK



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