Raise the floor: Why the new government should increase the minimum wage

December 16, 2019

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by Joe Dromey, Deputy Director of Research and Development, Learning and Work Institute

Pay is a critical component of fulfilling work. Given high levels of in-work poverty in the UK, there is a growing political consensus for increasing the wage floor. The Carnegie UK Trust is partnering with the Learning and Work Institute to explore the impact of increasing the minimum wage on workers, employers and the economy. Building on the evidence and in dialogue with workers and employers, we will set out how policy can seize the opportunities of a higher minimum wage, while mitigating the risks.

Introduced two decades ago, the national minimum wage has been identified as the most successful policy of the last 30 years.

This is partly due to its impact and to its staying power. Both the introduction of the minimum wage, and – more recently – the national living wage (a higher wage floor for workers aged 25 and above) have been found to have tackled extreme low pay, without costing jobs. Beyond this impact, the minimum wage has been remarkably successful in securing political consensus. During the General Election campaign, all major parties committed to increasing the wage floor.

New polling conducted by Learning and Work Institute and BMG shows strong public support for increasing the minimum wage. The Conservatives, who now have a majority government, have said they would increase the national living wage to £10.50, and extend it to all workers aged 21 and over, increasing the wage floor to a level never seen in the UK, and a level higher than almost anywhere in the world. This proposal is supported by two in three adults (66%), with just one in ten (9%) opposing.

In addition to strong popular support, international evidence suggests we could be more ambitious in increasing the wage floor. In a recently released review for the government, Professor Arindrajit Dube found the national living wage could be increased from its current level of 59% of median earnings, up to two thirds of that figure, equivalent of a rise of over £1 an hour.

The new government should set out a clear plan to increase the wage floor, which seizes the opportunities, mitigates the risks, and is clear eyed about what the wage floor alone can achieve.

A higher wage floor would require higher productivity if we are to avoid reductions in employment. That means we need to up our game in investment in skills – from both government and employers – as levels of investment are too low. It would also require an active industrial strategy in low-paid industries.

A higher wage floor would require a greater focus on progression. Estimates suggest that under the Conservatives’ proposals, the number of people paid at the wage floor would more than double to four million. So the government will also need to think about how to enable workers to progress off the wage floor.

A higher wage floor would require proper enforcement. The Low Pay Commission estimate that last year, nearly half a million workers are paid below the legal minimum. A significant increase in the wage floor could lead to more widespread illegal underpayment, so the government would have to ensure that a higher minimum is enforced.

Finally, while a higher wage floor would reduce low pay, it will not eliminate in-work poverty. That’s because it’s not just hourly pay that matters, but the number of hours people can work, the costs they face, and the support they get from the social security system.

As the IFS have shown, only a small proportion of minimum wage workers live in the poorest fifth of working households, so much of the direct benefits from a higher minimum wage will go to people in middle and higher income households. Low income households would see much of their additional pay clawed back through reduced benefit income.

So, alongside a higher wage floor, if we want to eliminate in-work poverty, we need to see a reversal of the welfare cuts, and action to tackle the cost of living.

A higher wage floor is possible, it is popular, and it could help tackle poverty pay.

This article was originally published by Left Foot Forward.