Effective and popular, now’s the time to build on the wage with a full low pay strategyby Conor D'Arcy / May 23, 2018 / Leave a comment
Bad policies get the most attention. Whole books have been written on government interventions that achieved the exact opposite of what they intended, or eventually delivered at miles over budget. That’s why the UK’s minimum wage—effective, popular and cheap—feels like such a rare thing.
The latest evidence confirms the minimum wage’s continued success. Since 2016, the National Living Wage (NLW)—the higher minimum wage for those aged 25 and over—has brought the legal wage floor from £6.70 to £7.83. Thanks to this, the hourly pay growth of low earners has far outstripped that of workers further up the pay scale.
The perennial concern with the minimum wage is that if its value rises too high, employers cannot afford it, the lowest earners are let go, and end up worse off than before. Reassuringly, the evidence to date suggests no such harm has been done by the NLW, with employment continuing to reach record highs. While no single reaction from companies seems to have dominated, there is some evidence that firms in two of the most affected sectors—restaurants and hotels—have passed some of the increased wage bill onto consumers in the form of price rises. The ideal response from a policymaker’s point of view would be if firms responded by enhancing their skills or equipping workers with output-boosting technology, thereby becoming more productive. While it is early days, there’s little to suggest the NLW has provided this spark in the UK’s low-paying sectors.
It is for the most part good news so far. But all policies have their limit. On current projections, even when the NLW is fully rolled out in 2020, approximately four million employees will still be in low pay. Going higher with the NLW would be both a risk—at some point a high minimum wage will damage employment—and overlook the issues that affect many low-paid workers beyond their hourly wage. A minimum wage can’t be the entirety of a low pay strategy.
What else should policymakers be thinking about? First, the number of hours worked is key. A higher hourly rate won’t translate into higher living standards if low-paid employees are working fewer hours. Although this can take many forms, atypical contracts like zero-hours contracts and agency working can mean workers don’t know how much they’ll be bringing home from week to week. The government is consulting on the Taylor Review’s recommendations…