According to the IFS, employers could respond to a rising cost of labour by switching to machines—but it’s not guaranteedby Agnes Norris Keiller / January 9, 2018 / Leave a comment
The minimum wage is rising rapidly. In 2015 4 per cent of employees aged 25 and over were on the legal minimum hourly wage of £6.70. Since then, George Osborne’s “national living wage” (NLW) policy has raised the wage floor to £7.50 and it is planned to reach 60 per cent of median wages in 2020 (£8.56 under current forecasts of wage growth).
Because these increases have been, and will continue to be, much greater than for wages in general, the fraction of employees aged 25+ subject to the minimum looks set to treble in just five years, reaching 12 per cent in 2020.
There is a case for a higher minimum wage to help low-wage people—especially since evidence up to 2015 suggests we hadn’t reached the point where a higher minimum starts affecting the employment prospects of those it’s designed to help. But clearly if we raised the minimum indefinitely we would eventually reach such a point: firms appear to be able to adjust to a minimum of £7 per hour without shedding jobs, but no one supposes the same would be true at £100 per hour.
The challenge is that we don’t know at what point inbetween the negative impacts on jobs (and/or hours of work) would become larger than we’re willing to tolerate. So as we push the minimum up into uncharted territory we need to do so in a careful manner that allows us to respond to new evidence on its effects.