The National Minimum Wage is 20!

03 Jun 2019

The National Minimum Wage (NMW) was born on 1 April 1999. It began life despite widespread opposition, a divided House of Commons and warnings that it would cause up to a million job losses.

How has the NMW grown up?

In its infancy it was a wage floor for people aged 23 and over of £3.60 per hour, then about 45% of average wages.  While it was a toddler, from 2003 until the financial crisis, this percentage increased slowly until it just exceeded 50% of the average wage in 2008.  It had a difficult childhood; the rate remained flat or fell in real terms through the financial crisis (although those receiving the NMW had smaller wage falls than those earning the average wage).

In 2015 George Osbourne announced a higher wage floor for workers aged 25+ - the new National Living Wage (NLW) – with the target that the NLW should be 50% of the average wage by 2020. If that is achieved – and it is likely to be – those on the NLW will have seen their wages rise twice as fast as the average wage.

Many countries have minimum wages but by 2020, only New Zealand and France will have a higher national minimum wage, compared with the average wage.  Further, no major economy has increased its national minimum wage as rapidly as the UK since the 2008 economic crisis.

Although the teenager has recently been growing rapidly, the NMW/NLW appears to have had no impact on the UK’s employment rate, which has increased from 71.8% of total workforce in April 1999 to 76.1% at present. The NMW/NLW appears to have had a positive effect on the hourly wages of the low paid but although hourly earnings have risen, weekly earnings have not. It appears that many people on the NMW/NLW do not work for a full week. Some may have opted to work fewer hours but perhaps many cannot work the hours they wish.

Nor is the impact of the NMW/NLW confined to the poor. Many of us live in households with more than one earner and, interestingly, the percentage of households with workers who are on the NMW/NLW is highest in the middle quintile of UK households by income, followed by the second quintile, then the fourth quintile and only then the first quintile followed by the fifth, (the first having the lowest income, the fifth the highest).

The NMW has had many teething problems which persist.  Many are technical and complex.  We are happy to assist you with these areas as and when they arise in your business or working life and you can contact Stephen ten Hove, Employment Partner, for further information regarding this.

* Many thanks are due to the Resolution Foundation for the statistics used in this article.

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