UK to introduce “living wage” for over-25s
The British government has announced a new “national living wage”, effectively raising the minimum wage for workers aged over 25.
From next year, the legal minimum rate for over-25s will be £7.20 an hour, rising to £9 by 2020. This will be in parallel with the existing minimum wage, which currently stands at £6.50 for over-21s.
The new rate is lower than the UK living wage defined by the Living Wage Foundation, which is currently £9.15 an hour in London and £7.85 elsewhere. Several major employers
have voluntarily chosen to implement this rate, which is calculated as the minimum required for a decent standard of living.
The Office for Budget Responsibility, which monitors the UK's public finances, estimates that the new regulations will have a “fractional” effect on employment, with around 60,000 fewer jobs as a result of the higher minimum wage. It expects this to be offset by jobs created as a result of other measures.
The plans were announced by finance minister George Osborne in his summer budget. The speech also contained a series of cuts to welfare benefits, including a restriction on working tax credits for parents with more than two children.
The impact of statutory minimum wages on jobs and living standards is controversial. IZA World of Labor author Richard Burkhauser has argued that minimum wages are not effective in reducing poverty, and that tax credits are a better alternative.
Elsewhere, David Neumark argues that introducing or raising minimum wages reduces the number of jobs available to lower-skilled workers, and that minimum wages do not necessarily benefit the poorest households.
Daniel Hamermesh similarly suggests that minimum wages have small negative effects on employment, albeit while raising earnings for low-wage workers who remain employed.
Read more on this story at BBC News.
Related articles:
The minimum wage versus the earned income tax credit for reducing poverty by Richard Burkhauser
Employment effects of minimum wages by David Neumark
Do labor costs affect companies’ demand for labor? by Daniel S. Hamermesh
Who benefits from the minimum wage—natives or migrants? by Madeline Zavodny
Do minimum wages induce immigration? by Corrado Giulietti