Proportion of employees earning the legal minimum will more than double over next five years

First minimum wage rise of the parliament foreshadows a steep escalation in the UK’s wage floor

The proportion of employees earning the legal minimum is set to more than double over the next five years as a result of a substantial uplift in the wage floor associated with the new ‘National Living Wage’ (NLW), according to new analysis published today (Thursday) by the Resolution Foundation to mark the latest increase in the National Minimum Wage (NMW).

The analysis shows that the proportion of employees earning within 1 per cent of NMW has increased sharply since 1999, with the wage floor rising steadily following its cautious introduction and so affecting a growing number of people. On average, around 1 in 50 workers earned the NMW in its first five years, a proportion that has grown to around 1 in 20 workers today.

With the minimum wage for the over-24s set to rise rapidly as a result of the NLW, the Resolution Foundation estimates that the proportion of employees earning the legal minimum is set to more than double over the next five years. Around 1 in 9 workers (12%) are expected to earn within 1 per cent of the NLW (or NMW if they are under 25) by 2020. The Foundation expects 3.2 million to earn the legal minimum by the end of the parliament.

The research shows that employees in the North East, East Midlands and Wales are most likely to earn the legal minimum, with around 1 in 7 workers (15%) set to be on the wage floor in those regions by 2020. In contrast, just 1 in 14 (7%) will earn within 1 per cent of the NMW or NLW in London.

Women and older workers are particularly likely to be affected. Roughly 1 in 7 (15%) female employees will be earning within 1 per cent of the legal wage floor by 2020, along with 1 in 5 (20%) of those aged 66+.

The figure is also higher in the private sector, where 1 in 7 (15%) of employees are set to earn the legal minimum. This rises to 1 in 4 (25%) of those working in micro businesses and to 2 in 5 (40%) employees in the hospitality sector.

The Foundation notes that this will mark a major change in the UK’s Labour market, with record numbers of workers set to have their pay set by the government each year. This new analysis highlights the importance of the government setting out a detailed implementation plan for the NLW.

Given the number of people set to be on the new wage floor, employers and government need to take seriously the issue of pay progression, with opportunities for staff to gain promotions, new skills and higher earnings. It warns that without these routes out of low pay millions of workers could simply get stuck on the wage floor, with little prospect of any career progression.

The Foundation adds that this implementation plan should include a clearly defined role for the independent Low Pay Commission in setting and overseeing the new higher wage floor, and more resources to ensure that the NLW is properly enforced.

Adam Corlett, Economic Analyst at the Resolution Foundation, said:

“Over a million workers will get a welcome pay rise today as a result of the latest increase in the minimum wage.

“Today’s 20p rise is relatively conservative given the strength of the labour market, but most of those on the minimum – and many just above it – will get a far bigger increase in April as a result of the National Living Wage announced in the Budget.

“The new ambition shown by the Chancellor is welcome. But it will mean that around one in seven private sector workers will have their pay directly set by government by 2020. Given the scale of the change, government must now work closely with the Low Pay Commission and employers to ensure the policy is a success. It’s also important that businesses offer low-paid staff more opportunities for promotion and progression so that they don’t get stuck on the wage floor.

“The National Living Wage has injected fresh energy into the debate on tackling Britain’s chronic low pay problem, but further action will be needed to secure stronger wage growth throughout the workforce.”

Notes to Editors

• Today the National Minimum Wage for workers aged 21 and over rises by 3% from £6.50 to £6.70 an hour. From April, the mandatory National Living Wage for workers aged 25 and over will be set at £7.20 an hour. It is expected to rise to over £9 an hour by 2020, in line with the Chancellor’s target of it reaching 60% of typical hourly earnings.
• The analysis is based on the government’s NLW policy and overall OBR projections for employment. It does not attempt to model any other changes in the composition of the labour market or distribution of pay.
• This work contains statistical data from ONS which is Crown Copyright. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates.