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UK Minimum Wage rises by 2.5% in October 2011
8th April 2011
An update on the economics of pay floors in the labour market. The adult rate for the UK minimum wage will rise by 15p to £6.08 an hour from October. The 2.5% increase is broadly in line with pay settlements but well below consumer price inflation, which is expected to breach 5 per cent this year. So in real terms, the value of the minimum wage will drop. The rate for 18 to 20-year-olds will rise 6p, or 1.2 per cent, to £4.98, and for 16 to 17-year-olds by 4p, or 1.1 per cent, to £3.68. But the apprentices’ rate will go up by 10p, or 4 per cent, to £2.60.
As is customary the decision is the moment for business organisations to claim that the rise is inappropriate for the economy at this stage of the economic cycle and for union leaders to lobby for a higher increase and moves towards a living wage. For those who want a huge amount of background data on the impact of the NMW on the labour market, the Low Pay Commission report is a gold-mine.
“Our own analysis, commissioned research, evidence submitted in our consultation and anecdotal evidence from visits and meetings have found that some employers have responded to the change in earnings (and consequent increase in labour costs) by adjusting non-wage costs and changing pay structures. Overtime and unsocial hours premia may have been reduced; pensions and annual leave entitlement made less generous; pay zones (geographic and hierarchical) merged; or differentials may have been squeezed. Further, there is also evidence to suggest that some firms may have coped with minimum wage increases by reducing hours, raising prices, or by accepting lower profits. However, the evidence available to date suggests that minimum wages do not appear to have cut employment to any significant degree. Further, the reduced hours do not appear to have reduced weekly earnings and the lower profits have not led to business closures..”
More from the link below
Background articles:
Low Pay Commission Report for 2011 (April 2011)
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.