How does the minimum wage compare to top pay?


Earlier this week the government announced that the minimum wage will rise to £6.31 from October this year. This marks a 1.9 per cent increase on the current rate of £6.19 and means the fourth straight annual fall in the real value of the minimum wage after inflation. The new rate was announced by Vince Cable at a Resolution Foundation event, held with the High Pay Centre and the Institute of Directors, to bring together debates about high pay and low pay. So how exactly does the minimum wage compare to the hourly wages received by those higher up the earnings distribution?

Figure 1 below shows the gross hourly wage at different points in the hourly earnings distribution: the National Minimum Wage from October 2012 and the new rate from October 2013, and at the 50th (the median), 70th, 90th and 99th percentiles. The earnings distribution considered here relates to the gross hourly wage received by full-time employees as recorded in the Annual Survey of Hours and Earnings (ASHE). This measure excludes overtime but includes any bonus payments or incentive pay received in the reference pay period.1

The analysis shows that a full-time worker halfway up the earnings scale gets roughly twice the wage of a minimum-wage worker, at just under £13. The employee at the 70th percentile – that is the worker who is situated 70% up the hourly wage distribution – commands an hourly wage around three times greater than the minimum wage at just over £17.

For a worker at the 99th percentile, the disparities are dramatically bigger still. In 2012 the p99 gross hourly wage was £59.31. Someone on this wage working 40 hours a week for 52 weeks per year would take home around £123,365 per year. In contrast, prior to October 2012 the minimum wage stood at £6.08, so a minimum wage employee working the same hours would earn £12,646 per annum. After October 2012 the minimum wage rose to £6.19 per hour, equivalent to an annual full-time salary of £12,875. So the p99 worker earns almost 10 times as much per hour as a minimum wage worker.

This means that a minimum wage worker would need to work for an extraordinary (and impossible) 380 hours a week in order to match the annual salary of someone at the 99th percentile. Alternatively, a minimum wage worker could work 24 hours a day for 830 days – more than two years – to match the p99 worker.

1. The value of bonus payments is potentially understated in this measure because the ASHE reference pay period (April) may not coincide with when many employees actually receive their bonuses. This is likely to affect top earners more because they tend to receive more of their total remuneration in form of bonuses. Therefore the calculated ratios of the p99 hourly wage to the minimum wage presented here are conservative estimates of the disparity between the full remuneration of top earners and minimum wage workers.