A decent minimum wage must be accompanied by real reform of our labour market

April 7, 2021

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By Paul Nowak, Deputy General Secretary of the Trades Union Congress

The Carnegie UK Trust’s Future of the Minimum Wage project explores how an increased minimum wage can be delivered as part of a wider labour market strategy that promotes good work and tackles in-work poverty. To mark the 2021 uprating of the minimum wage, we are featuring guest blogs from representatives of workers and businesses discussing the future path of the minimum wage and its implications for businesses, workers, and policy in the COVID-19 context.

The minimum wage has improved the pay of millions of low paid workers and is widely considered a policy success story. But even as minimum wage rates increased last week, many workers face significant challenges in their working lives. Too many working people find themselves in poverty and the pandemic has highlighted just how precarious work is for millions of people. A decent minimum wage needs to be combined with wide-reaching reform of our labour market – with stronger rights for working people and their unions.

The Carnegie UK Trust’s recent report on the minimum wage delivers a cogent, intelligent summary of how we deliver an effective pay floor in the future. It was great to speak at the launch event and to share some of my reflections here.

The role of the minimum wage over the past two decades

Looking back over the past 22 years the minimum wage has been a genuine policy success. That has not happened by accident – the social partnership which underpins the Low Pay Commission has helped secured widespread consent for its recommendations.

It is easy to forget that back in the mid-1990s, that consensus wasn’t so evident. The CBI, other employer organisations, and the Conservatives were among those who opposed the minimum wage’s introduction. We had now infamous and inaccurate predictions about job losses and warnings about inflationary pressures.

If we fast forward to 2021 we have a broad consensus that we can afford to pay all our workers a decent minimum. A Conservative government has set the target of a living wage based on two-thirds of median hourly pay within the next three years – unthinkable a generation ago.

It is clear the minimum wage has made a genuine difference to our lowest-paid workers – the majority of whom are women. And it has eradicated the extreme low pay that afflicted millions of workers prior to 1999.

Workers still face big structural problems

Despite all that progress – low pay, insecure work and in-work poverty remain huge structural problems today. One in five workers earns less than the real living wage and two-thirds of kids growing up in poverty have at least one parent in work.

These challenges have been brought into sharp relief by the COVID-19 pandemic. We know it’s those on low pay, and insecure contracts that have suffered most amongst working age people. The pandemic has not created those inequalities; but it’s exacerbated them and brought them into the daylight.

What needs to be done?

The Carnegie UK Trust report comes at a timely moment. We need to build a recovery that creates good work and builds on the success of the minimum wage.

I endorse many of recommendations in the Carnegie UK Trust’s report. I agree that the government should stay on course to deliver its target for 2/3 of median wages by 2024, and that sectoral collective bargaining and sectoral collective agreements have a key role to play in building on the minimum wage. I also agree that younger workers should be paid equal rates for their work and a single rate for over 21s is a good step towards that. I particularly agree with the need to strengthen the conditions for collective bargaining.

There are some things put forward in the report I am more sceptical about. While the pandemic has been a huge challenge for many businesses’ finances, I’m not convinced by the logic for cutting employer national insurance costs. In my view, the costs of employing workers on the minimum wage will NOT be the key factor driving employment levels over the coming year or two.

The things that will be much more important are keeping the furlough scheme in place for as long as necessary, providing sectoral support and putting a genuine impetus behind job creation programmes. All of this will be much more important than the headline rate of the minimum wage.

Beyond the minimum wage

The minimum wage is just one tool at our disposal. The report is right to argue that we must broaden the debate beyond minimum pay rates to the broader question of decent work.

My view is that collective bargaining is key to this. We need stronger collective rights to be able to do our job and raise standards in the workplace.

We also need stronger employment rights for all; a ban on zero hours contacts; workers on boards; an active industrial strategy to deliver good jobs in the communities that need them most; and investment in green tech and public services too.

And we want a social security system that complements, rather than nullifies, increases in the pay floor. It’s no good paying people a little more if we then reduce, or remove, the other lifelines on which they and their families depend.

The £20 a week increase in Universal Credit is a small step forwards, but it needs to be made permanent. And accompanied by more generous benefits for our army of low-paid workers.

COVID-19 has illustrated how precarious life is for millions of low-paid workers. And when this is over we must reset our economy in fundamental ways.

A more generous minimum wage is a big part of that. But for that to be truly effective, it must be accompanied by real reform of our labour market – with stronger rights for working people and their unions.

 

*PHOTO CREDIT: The photo of Paul Nowak was taken by Jess Hurd