Why new minimum wage rates are good value
New minimum wage rates come into force today, increasing the national minimum wage (NMW) for people over 21 from £6.31 to £6.50 per hour (a 3 per cent increase). The rates for apprentices, 16-17 year olds and 18-20 year olds, will also increase by 2 per cent.
Good news for low paid workers
This is good news for low paid workers. Since the NMW was first introduced in 1999, a great deal of effort has gone into ensuring that the rate weighs as little on unemployment as possible and research has consistently found that it’s having a positive impact. Fears that its introduction would have a detrimental effect on businesses and employees have not been realised.
No evidence of significant adverse impacts
A 2012 study by the Institute for Social and Economic Research (ISER) for the Low Pay Commission emphasises this, stating that “studies of the effects of the NMW carried out before the recent recession (2003-2007) found almost no evidence of significant adverse impacts on employment and only little evidence of a negative impact on hours worked”.
They also found “little evidence that the recession has increased the sensitivity of employment and hours worked to increases in the NMW”. This is echoed in a 2013 study by the National Institute of Economic and Social Research (NIESR) for the Low Pay Commission, which found “no robust evidence to suggest that the NMW has changed average employment or investment rates for low-paying companies. Nor do we find robust evidence to suggest that the NMW has had a detrimental impact on firm outcomes since the financial crisis and the recession of 2008”.
As the evidence shows it’s a good thing, it’s not surprising that it’s been recently argued that the rate could be higher still. Labour has recently announced that if they were in government they would set the Low Pay Commission a target to raise the minimum wage to £8 an hour by the end of the parliament in 2020, as “The fall in the real value of the National Minimum Wage since 2010 is now costing the taxpayer £270 million a year in additional benefits and tax credits” and effectively means that the tax credit system is subsidising employers to pay wages that keep people in working poverty.
At Nesta we are going further than this already, by making sure our staff are paid a minimum of the living wage, or the London living wage (currently £8.80 in London).
The future of jobs
Our work at Nesta on innovation in jobs has got us thinking about the future of work and how trends we are beginning to see now will affect how people are paid for the work they do, and the extent to which they will have ‘jobs’ at all in the future.
Whether that is through the rise of the robot economy, or the proliferation of digital platforms that link individuals to small parcels of work, or increasingly precarious employment, we could see people selling their skills, services and time in a way that redefines work and how we are rewarded for it.
But will this be supplementing a steady income and making work more flexible for people, or undercutting the minimum wage and making it harder to earn a living that keeps people above the poverty line? We’ll be exploring some of this and more through our Future Shock event on 14 November.