Minimum wage act II: options for strengthening the UK minimum wage

Document type
Discussion paper
Author(s)
Plunkett, James; Wilson, Tony; D'Arcy, Conor
Publisher
Resolution Foundation
Date of publication
21 February 2014
Subject(s)
Employment, Poverty Alleviation Welfare Benefits and Financial Inclusion
Collection
Social welfare
Material type
Reports

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The national minimum wage is no longer strong enough to tackle the country’s low pay problem and the policy will need to be reformed if it is to repeat the successes of its first 15 years. So what could it mean to more formally strengthen Britain's minimum wage and the architecture of the Low Pay Commission (LPC)? How could the policy be given renewed relevance for the next fifteen years? This paper sets out a range of practical options. The ideas it presents try to manage the tension inherent in any reform of Britain’s minimum wage. On the one hand, policymakers need to protect what works well in today’s approach. The minimum wage, after all, is one of the most effective policy reforms of the last thirty years. On the other hand, much has changed since the current settlement was forged in 1998. After fifteen years of research we have a much clearer insight into how minimum wages work. And today’s challenge of low pay is itself a different beast to the one confronted fifteen years ago. At least one in five employees, and possibly many more, earn below £7.71 an hour, two-thirds of the median wage and the standard definition of low pay. But recent data suggests only 9 per cent of these low paid workers are on extreme low pay (below half the median) of the kind that a legal wage-floor can easily address. Back in 1997, a third (32 per cent) of all low paid workers—7 per cent of the total workforce—were on extreme low pay. Today’s frontline in the battle against low pay is people who earn above the minimum wage but still too little to get by; this challenge may be beyond the reach of today’s approach.

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