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November 04, 2019

Plans to raise the minimum wage in the UK are backed by review

Plans to raise the minimum wage in the UK are backed by review

An independent review has endorsed Britain’s plan to raise the minimum wage to £10.50 an hour and it has also found that setting a floor on pay has a negligible effect on job creation. Whatever the outcome, companies are now also likely to experience a rise in wage costs after the upcoming snap general election. Back in September, Conservative Finance Minister Sajid Javid said that, economic conditions allowing, he would increase the National Living Wage (NLW) to the new target by 2024, and expand its reach to all workers over the age of 21. The Labour Party has announced that, if it wins, it would raise the minimum wage to £10 an hour.

An independent review commissioned by the government from economics professor Arindrajit Dube of the University of Massachusetts Amherst has looked at the impact of minimum wages in Germany, the US, Britain, and other countries. The findings conclude that a higher NLW in the UK up to two-thirds of the median wage can be explored. David Neumark, an IZA World of Labor contributor, has also evaluated both the potential benefits and the potential downsides of higher minimum wages.

In his article he notes that: “[h]igher minimum wages are becoming the norm in many countries. Although a minimum wage policy is intended to ensure a minimal standard of living, unintended consequences undermine its effectiveness. A good deal of evidence indicates that the wage gains from minimum wage increases are offset, for some workers, by fewer jobs. Furthermore, the evidence on distributional effects, though limited, does not point to favorable outcomes from minimum wage hikes, although some groups may benefit.” Neumark adds that: “[r]esearch findings are not unanimous, but especially for the US, evidence suggests that minimum wages reduce the jobs available to low-skill workers.”

IZA World of Labor author Charlene Marie Kalenkoski has also explored the effects of minimum wages on youth employment and income. According to her, minimum wages reduce entry-level jobs, training, and lifetime income. “Evidence shows that minimum wages reduce employment and create unemployment among young unskilled workers. While some youths will benefit from higher current earnings, others will not find work, delaying labor market entry and reducing lifetime incomes,” Kalenkoski notes in her article.

Read David Neumark’s article Employment effects of minimum wages and Charlene Marie Kalenkoski’s article The effects of minimum wages on youth employment and income.