Both main parties have pledged to increase it in their manifestos. This is unlikely to harm employment growth; it could even help remedy the UK’s crippling productivity problemby Duncan Weldon / June 7, 2017 / Leave a comment
Whether the next prime minister is Theresa May or Jeremy Corbyn, one thing looks certain—the National Minimum Wage (or the National Living Wage as George Osborne rather cheekily rebranded it) is set to rise. The Conservatives have pledged to raise the wage floor up to 60 per cent of median earnings by 2020, equating to a minimum wage of around £9 an hour, whilst Labour has gone further by offering £10 over the same time frame. Both offers are substantial increases from the current level of £7.50 for the over 25s.
The politics of the minimum wage have shifted rapidly since its introduction in 1999. A measure once opposed by the Conservatives has been embraced by both main parties who are now fighting a bidding war in terms of offering the most to the low paid. Despite this, there are still some who argue the minimum wage does more harm than good to the workforce and the wider economy. They are mistaken; it has been a UK success story, and future rises in it are welcome.
Dire warnings initially that imposing a legal minimum would lead to a substantial increase in unemployment have been proved incorrect. Today Britain’s employment rate stands at a record and the pressing problem facing the labour market is not a lack of jobs but a lack of decent earnings. The real wage (wages after adjusting for the change in prices) squeeze of 2008 to 2014 was the longest since Victorian times and with inflation picking up following Sterling’s post-Brexit slide, real wage growth has once again turned negative. Even with sub-5 per cent unemployment, Britain’s flexible labour market appears unable to generate pressure for higher wages.
Of course, a higher minimum wage is not a panacea for this problem. It’s debatable to what extent a higher wage floor pushes up wages for the median—or middle—earner, rather than simply compressing the distribution of pay.
“No party’s minimum wage pledge has reached a level which would be a headwind for jobs growth”
And it should be acknowledged that the process for setting the minimum wage has changed in recent years, which may have implications for employment growth. From its introduction in 1999 until the…