NIESR: Hiking minimum wage too fast may undermine policy’s success

27 Nov 2019 11:55 AM

Raising minimum wage levels too quickly risks undermining the strong consensus between employers, workers and political parties that has been built up during the past two decades, especially if the increases lead to falls in employment that are difficult to reverse, according to an election briefing by the National Institute of Economic and Social Research (NIESR).

“The available evidence suggests there is scope to explore more ambitious increases in the minimum wage in the UK. We are, however, concerned about the politicisation of the minimum wage, and how this election has quickly turned into a bidding war over which political party can offer the highest minimum wage rates” said co-author Johnny Runge, Senior Social Researcher at NIESR. “The minimum wage has been a great policy success story over the last two decades, in part because of the close partnership and consensus across experts, employers, workers and political parties. This could be quickly undermined if political leaders alone take control of the future path of the minimum wage.”

Co-author Andrew Aitken, Senior Economist at NIESR, added: “However, if the minimum wage is increased too quickly, it could harm jobs, particularly for part-time workers, younger workers or those in specific regions and occupations. It is vital that the next government gives the Low Pay Commission a clear mandate to pause and reconsider if any evidence emerges of negative effects on employment.”

Both Labour and the Conservatives have promised increases to the minimum wage. Labour has proposed to introduce rapidly a £10-an-hour Real Living Wage for all workers over 16. The Conservatives have proposed to increase the National Living Wage to two-thirds of the median wage by 2024 and lower the age eligibility to 21 from 25.
The overall body of evidence from research into the effects of minimum wages suggests that increases in the minimum wage have boosted pay by much more than they have had negative effects on jobs. NIESR analysis for the LPC of the introduction of the National Living Wage in April 2016 found no negative impact on overall employment.
All future increases in the minimum wage need to pay careful attention to demographic subgroups, such as women working part-time, who are likely to be more vulnerable to losing their job or having their hours cut.
The parties’ proposed increases represent a much bigger step up in wages in some regions of the UK, because the level of wages varies across the country. Therefore, employees in parts of the country where average wages are lower, such as the North East, Northern Ireland, Wales and East Midlands, would be more likely to receive pay increases, but could also be at more risk of losing their job.
The precise size and pace of minimum wage increases should best be delegated to the LPC, which should have a clear mandate to pause and reconsider the path of increases if evidence emerges of significant job losses for those affected by the policy.
The minimum wage is not a panacea whereby low wage work can simply be legislated away by the imposition of ever higher minimum wage rates. It needs a wider slate of supporting policies including on tax and welfare benefits, employment, education, skills, and social care and childcare.

Notes for editors:

This full General Election Briefing on the future Path of the Minimum Wage can be found here.

NIESR’s microsite containing briefings, podcasts and vodcasts on the General Election can be found here.

This briefing is supported by the Nuffield Foundation.

For further information or to arrange interviews, please contact the NIESR Press Office: Phil Thornton on 0207 654 1923/ p.thornton@niesr.ac.uk or Luca Pieri on 0207 654 1931/ l.pieri@niesr.ac.uk

Further details of NIESR’s activities can be seen on http://www.niesr.ac.uk or by contacting enquiries@niesr.ac.uk Switchboard Telephone Number: +44 (0) 207 222 7665