Minimum wage now lower than eight years ago

The national minimum wage has reduced wage inequality but without damaging employment, according to a new report for the independent think tank the Resolution Foundation.  The news comes in light of this year’s just announced 11p increase from £6.08 an hour to £6.19, with the rate frozen for young people. This is the third successive real terms decline in the value of the minimum wage and will leave it in real terms below the level it was in 2004.

The report, Minimum wage: Maximum Impact, by Professor Alan Manning at the London School of Economics, finds that:

• 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 proportion of adults paid the minimum wage varies substantially with age – around 10% of 22 year olds are on it, compared to around 3% of the population by age 30;
• the UK rate sits in the middle of the pack internationally, lagging France and New Zealand where minimum wages are closer to 60% of median earnings.

Alongside no negative impact on employment, the report finds a positive impact on the wages of workers even quite some distance above the minimum wage, contributing to declining wage inequality during the 2000s.

James Plunkett, senior analyst at the Resolution Foundation ‘We are now beyond the point where anyone can question the benefits of the national minimum wage, or assert that it has been damaging to employment. The question now is what role it can play in the future to raise the living standards of the lowest paid and reduce income inequality even further.’

Professor Alan Manning, author of the report said ‘Although a reasonable middle ground for the future would be to link the minimum wage to grow in line with median pay – we also need to think more radically. The ideas of a higher minimum wage for older workers above 30 – or for London and the South East – have some merit. Looking at what different sectors can actually afford to pay would also bring more pressure to bear’.

Notes to editors

The report will be launched at an event with Professor Alan Manning, John Philpot – chief executive of CIPD, and John Cruddas MP on Tuesday 17 April, 23 Savile Row, 9.30-11am. To attend please contact external.affairs@resolutionfoundation.org

The adult national minimum wage is due to increase to £6.19 an hour from 1 October 2012, with the rate frozen at £4.98 for those aged 18-20 and frozen at £3.68 an hour for those aged 16-17. Currently, the Low Pay Commission submits a proposal to the Government on how the NMW should be uprated in the following October.

Professor Alan Manning is Head of the Economics Department at the London School of Economics where he has taught since 1989.  He is one of the UK’s leading labour market economists and has published widely on the impacts of the minimum wage, monopsony, immigration and technological change on wages and employment.

The report was commissioned by the Resolution Foundation to input to its Commission on Living Standards, examining the long term decline in living standards for those on low to middle incomes. The Commission is due to publish its final report in the autumn www.livingstandards.org