The proportion of low-paid workers across Britain has fallen to its lowest level since 1980, and low pay could be eliminated altogether by the middle of the 2020s, according to the Resolution Foundation’s latest annual Low Pay Britain report.
Low Bay Britain 2019 examines the extent of low pay across the economy (defined as two-thirds of median hourly earnings) and where the UK’s wage floor could be heading in the coming years given the two main parties’ ambitious plans to raise the minimum wage even higher.
The report finds that, following two decades in which over one in five workers across Britain were low paid, the introduction of the National Living Wage (NLW) in April 2016 has significantly reduced low pay – from 20.7 per cent of the workforce in 2015 down to 17.1 per cent last year.
The report notes that the number of low-paid workers across Britain fell by almost 200,000 last year, including over 130,000 women and 120,000 people aged 21-30 (despite under 25s not being legally entitled to the NLW). The biggest falls in low pay have taken place in administrative and support services, and retail, where the number of workers in low pay fell by 110,000 in total.
The ramping up of the NLW has also increased the number of workers earning the legal minimum to a record 2 million (7.3 per cent of all workers). The report says that this ramping up has taken place without any significant negative impacts on jobs. UK employment is at a record high, and recent jobs growth has been fastest among groups who are disproportionately likely to be on the minimum wage, such as those with fewer qualifications. New analysis also shows that there is no evidence that recent falls in average hours worked by lower earners is being driven by increases to the NLW.
Low Pay Britain notes that the five-year ratcheting up of the NLW is due to finish next April, and that further big rises are in store after 2020. The Chancellor has announced an ambition to raise the NLW to a level that would end low pay, while Labour has called for a ‘real living wage’ of around £10 an hour to be based on living costs rather than linked to earnings (as the NLW is).
The report shows that raising the NLW to a level that would ‘end low pay’ (by setting it at two-thirds median hourly earnings for workers aged 25+) would represent a further huge change to our labour market. If it was in place today it could more than double the number of workers on the wage floor, with more than one in three part-time workers and more than one-in-five workers across Wales, the Midlands and the North of England, earning the legal minimum.
The Foundation says that raising the minimum wage this high would transform the labour market, and give the UK the fifth highest minimum wage of all advanced economies. The government should therefore move cautiously toward meeting this target and be prepared to adjust the NLW in light of changing economic conditions, and the Low Pay Commission should continue to play a key role in looking for any emerging evidence of negative impacts.
Low Pay Britain finds that raising the NLW after 2020 – slightly more slowly than the fast ramping up of recent years, but above the average since the minimum wage was introduced in 1999 – would mean the Chancellor’s ambition of ‘ending low pay’ could be met by the middle of the 2020s. The Foundation says that increasing the NLW at this rate would balance the ambition for a higher wage floor with caution, given that we do not know at what level employment effects might begin to kick in.
Nye Cominetti, Economic Analyst at the Resolution Foundation, said:
“The National Living Wage has transformed Britain’s low pay landscape, with the number of low-paid workers falling by 200,000 in the last year alone. Women and young people have been the main beneficiaries of a higher minimum wage, whose ratcheting up has not stopped employment rising to a record high.
“It’s great that both main parties want to go even further on raising the minimum wage and eliminate low pay altogether. But such an ambitious move would transform the labour market, and must therefore be approached boldly but cautiously.
“An ambitious but cautious approach that saw the National Living Wage continue to rise after 2020 – at a faster pace than the minimum wage has increased over its 20 year history – would put Britain on course to eliminate low pay in the middle of the 2020s, while still giving the government room for manoeuvre if economic conditions change.”