This year’s planned increase in the national minimum wage will leave it lower than it was in 2004 after inflation is taken into account, according to a new report for the independent think tank the Resolution Foundation.
The minimum wage will rise in cash terms from £6.08 to £6.19 this October, its third successive below inflation increase, leaving it 6% below its 2009 peak in real terms.
The report, Minimum wage: Maximum Impact, by Professor Alan Manning, Head of Economics at the London School of Economics, acknowledges that recent caution on increases is justified but finds the impact of the national minimum wage (NMW) has now stalled:
- after sharp increases in the 2000s, the value of the UK national minimum wage has now flat lined at just over 50% of median (middle) earnings;
- the UK rate sits in the middle of the pack internationally, lagging France and New Zealand where the NMW is closer to 60% of median earnings;
- around 10% of 22-year-olds are paid the NMW compared to around 3% by age 30.
Citing overwhelming evidence that the national minimum wage has reduced wage inequality without damaging employment, Professor Manning considers options for future reform to ensure maximum impact without risking job losses:
- introducing a higher rate for workers aged over 25 or 30;
- introducing a higher rate for London and the South East;
- asking the Low Pay Commission to publish an estimate of the minimum wage that big companies in different sectors could afford, raising pressure to pay more than the legal minimum.