Labour market A record 1.2 million workers to benefit from first real-terms minimum wage rise for six years today 1 October 2014 A record 1.2 million workers to benefit from first real-terms minimum wage rise for six years today Record numbers ‘stuck’ on minimum wage The number of employees earning the national minimum wage has reached its highest level since its introduction 15 years ago, according to a new report published by independent think-tank the Resolution Foundation to mark the latest rise in the minimum wage today (Wednesday). Turning Point? – the minimum wage in 2014 and beyond shows that around one in twenty employees earn the national minimum wage (NMW) – a proportion that has almost doubled since 1999. Approximately 1.2 million employees currently earn the legal minimum, compared to just over 600,000 when it was first introduced in April 1999. Today the NMW for adults aged 21 and over increases by 3 per cent from £6.31 to £6.50 an hour – its first real-terms increase since 2008 (CPI inflation is currently running at 1.5 per cent). However, years of below-inflation increases mean that in real-terms the minimum wage will today only reach the level it was in 2005. Turning Point? shows that a further 1.3 million employees are clustered close to the minimum wage – earning within 50p of the legal minimum. Together this means that around one in ten employees (2.5 million) earn within 50p of the NMW. Many of these workers will have their pay influenced by the minimum wage and will likely benefit indirectly from today’s 3 per cent rise too. The report also finds that an increasing proportion of workers are finding themselves stuck for long periods on and around the NMW. Among those minimum wage employees who have been in the workplace for at least five years, a record one in four have failed to progress off the minimum for the entirety of that period, compared to just one in ten minimum wage workers a decade ago. Among those minimum wage employees who have been in the workplace for at least ten years, around one in eight have been stuck for the full decade. The fact that more employees are getting stuck around the NMW shows the importance of both increasing the value of the minimum wage and finding ways of ensuring better pay progression so that workers can escape low pay altogether, says the Resolution Foundation. As well as looking at recent trends in the minimum wage, the report considers how far the main adult rate could rise over the course of the next parliament. The scenarios modelled by the Resolution Foundation include: Keeping up with prices.Raising the NMW in line with CPI would take it to £7.18 by October 2019 (the last increase scheduled to take place in the next parliament) – almost halfway towards the £8 rate suggested by Ed Miliband. Restoring its value. Returning the NMW to its pre-recession real terms value by 2019 would take it to £7.48. This would be higher (£7.69) if achieved withinthe timeframe suggested by Vince Cable last year of two to four years. Keeping up with earnings. Raising the NMW in line withmedian earnings would take it to £7.70, the Resolution Foundation estimates. Back to business as usual. A return to the kind of minimum wage rises seen between 2002 and 2007 (roughly CPI +3 per cent)would take it to £8.31. The report also maps out a ‘no downturn’ scenario to illustrate how far the recession has pushed the minimum wage off course. Had the NMW continued on its pre-recession course it would reach £10.83 an hour by 2019 – far beyond any of the scenarios or ambitions expressed by any mainstream political party. The Resolution Foundation’s minimum wage report is published ahead of its annual earnings audit Low Pay Britain, which is due to be published in late October. Matthew Whittaker, Chief Economist at the Resolution Foundation, said: “Over one million employees on the minimum wage will get a 3 per cent pay rise today. For many this will be their first real pay rise in six years. “Following its introduction we became used to rapid annual growth in the minimum wage but the downturn has blown it way off course. Today’s minimum wage is no higher in real terms than it was almost a decade ago. “As the gap between pay at the bottom and middle has narrowed – first because of big increases in the minimum and more recently because of reductions that have hit hardest above the wage floor – so an increasing number of employees have found themselves affected by the minimum wage. “The increased ‘stickiness’ of jobs on the minimum wage points to a wider problem of low pay in Britain. Tackling the growth and persistence of low pay is a key test of whether this will be a shared recovery.” Source: RF analysis of ONS, Annual Survey of Hours and Earnings(ASHE) From today (1 October), the minimum wage for employeesaged 21 and over rises by 19p to £6.50 an hour – a rise of three per cent. The minimum wage rate for 18-20 year olds rises by 10p to £5.13 an hour, the rate for 16-17 year olds rises by 7p to £3.79 an hour and the rate for apprentices rises by 5p to £2.73 an hour. The Resolution Foundation analysis is based on the latest available data from ASHE, which reports earnings in April 2013. The analysis focuses on the age specific minimum wage levels for the individuals captured in ASHE. The Resolution Foundation has defined anyone earning within 5p of their age specific minimum wage to be on the minimum wage, in line with the Low Pay Commission’s approach. The Resolution Foundation recently concluded a review of the minimum wage, led by the founding Chair of the Low Pay Commission(LPC) Professor George Bain. It recommended that the remit of the LPC should be expanded to become a powerful new watchdog on low pay, that it should use tools to push employers beyond the minimum wage where it is easily affordable, and that both the LPC and government needed to take a more far reaching approach to the minimum wage, for example with a medium-term target for a higher rate. Vince Cable called for the restoration of the minimum wage to its pre-recession value in aninterview with the Guardian ahead of his speech at the Liberal Democrat conference in 2013. In an interview a with the BBC earlier this year, Chancellor George Osborne suggested that restoring the real terms value of the minimum wage would mean a £7 rate by 2015/16. Last week, the Labour Party leader Ed Miliband argued for a £8 minimum wage by the end of the next parliament. Anembargoed copy of Turning Point? – the minimum wage in 2014 and beyond is available from the press office. The Resolution Foundation is an independent think-tank which works to improve the lives of people on low to middle incomes. Ends For more information contact: Rob Holdsworth (Director of Communications) on 020 3372 2959 or 07921 236 972 Natalie Cox (Communications Officer) on 020 3372 2955 or 07983 550 337
