Member Article

Third below inflation increase for minimum wage

Research from think-tank the Resolution Foundation suggests that this year’s planned increase in the national minimum wage will leave it lower than it was in 2004, due to inflation.

As the minimum wage will rise in cash terms from £6.08 to £6.19 in October, this is the third successive below inflation increase, leaving it 6% below its 2009 peak in real terms.

In a report called Minimum wage: Maximum Impact, Professor Alan Manning, Head of Economics at LSE, finds the impact of the national minimum wages has now stalled.

He found that after sharp increases in the 2000s, the value of the UK national minimum wage has now “flatlined” at just over 50% of median earnings.

Internationally, the UK sits mid-table, behind France and New Zealand where the national minimum wage is closer to 60% of median earnings.

Suggesting the national minimum wage has reduced wage inequality without damaging employment, Professor Manning has considered a number of options to ensure maximum future impact, including: a higher rate for workers aged over 25 or 30, a higher rate for London and the South East, and asking the Low Pay Commission to publish an estimate of the minimum wage that big companies in different sectors could afford, raising pressure to pay more than the legal minimum.

James Plunkett, senior analyst at the Resolution Foundation, commented: “After 13 years of detailed studies into its impact, the benefits of the national minimum wage are now beyond doubt.

“It has boosted wages for some of the poorest paid people in the country and helped to make sure work pays, without causing job losses.

“The question now is what role it can play in the future to raise living standards even further.”

Professor Manning added: “The minimum wage is one of the most popular policies of modern times but in some sense it’s been a victim of its own success.

“Given the scale of the challenge now facing living standards it might be time to think about more radical options for reform. For example, we could consider introducing a higher minimum wage for workers aged over 30 who are more likely to have families to support, or for London and
the South East.

“We could also do more to show that big companies in some sectors could afford to pay more than the legal minimum.”

Commenting on recent recommendations to the Government, the Chair of the Low Pay Commission, David Norgrove said: “Our recommendations this year are, as ever, based on extensive economic evidence and take account of the prospects for the UK economy.

“Although the economy is forecast to grow through 2012 and 2013, the expected pace of growth is uncertain and is likely to be low. We believe our recommendations for October 2012 balance the needs of low-paid workers against the challenges facing businesses, particularly small businesses.

“The position of young people in the labour market is a cause for concern. Their employment prospects continue to suffer more than those of other workers.

“Our recommendations to freeze the youth rates were made reluctantly, and may help to increase the relative attractiveness of young people to employers.

“For apprentices, over the past year apprenticeship starts have increased for all age groups and we have recommended a 5p increase in the Apprentice Rate.

“Business told us that the NMW simplification they want is not change to the law, but clear and accessible advice about it. We have concerns over the quality and availability of guidance on the NMW so have recommended improvements to the guidance.

“We are very concerned over the apparent low levels of awareness of rights and obligations under the NMW and also that the policy announced last January of publicly naming wilful infringers has not been used.

“We would like to see the Government take actions to raise awareness, and also to make frequent use of naming policy to show that those who infringe the NMW get caught and punished.”

This was posted in Bdaily's Members' News section by Tom Keighley .