|Date:||11 May 2017|
|Authors:||Jonathan Cribb , Robert Joyce and Agnes Norris Keiller|
£10 minimum wage would result in the wages of more than a quarter of private sector employees being set directly by Whitehall
Between 1999 and 2015, the minimum wage met its objective of increasing the pay of the lowest paid employees, without any evidence of significant reductions in employment. That success was built on it being set, and gradually increased, by an independent expert body carefully assessing its impact at each stage.
The Conservative and Labour parties are now both departing from this model, proposing dramatic increases in its level. The proportion of employees aged 25 and over paid the National Minimum Wage has already doubled from 4% to 8% and will rise to 12% under Conservative plans (see Figure below). Under Labour party plans (to raise the minimum to £10 an hour by 2020) 22% of employees aged 25+ and more than a quarter of private sector employees aged 25+ would be paid at the minimum.
The fact that there is no evidence of a negative impact of the minimum wage on employment up until 2015 tells us nothing about the likely impacts of such big expansions of the minimum wage. Beyond some level higher minimum wages will reduce hours and employment, penalising precisely the groups they are supposed to help. There may well be a case for further gradual increases in the minimum wage but increases on the scale and at the speed being proposed create big risks.
The risks are all the greater when, as the Labour party is proposing, the new £10 minimum is intended to benefit those aged 18 to 24 as well as older workers. 60% of these young workers would be on a £10 minimum wage. The long term costs to them if that results in lower employment would be very substantial indeed.
These are among the findings of a new report, funded by the Nuffield Foundation, in which IFS researchers have analysed the Conservative and Labour party plans for minimum wages and examined which groups of employees will be particularly affected by the proposed policies.
Other key findings include:
Jonathan Cribb, a Senior Research Economist at IFS, and an author of the report, said,
“Carefully set minimum wages can be a useful policy tool for governments seeking to help those on low wages. But at some point, higher minimum wages will reduce the employment of lower skilled workers. Since we do not know where that point is, sudden large increases are risky. They endanger the jobs of those they seek to help. Labour's proposal to rapidly extend a £10 per hour minimum wage to 18-24 year olds, regardless of the state of the economy in 2020, is a particular gamble. Given how harmful periods of unemployment can be for young people, the long term costs could be considerable.”
Figure: Proportion of employees aged 25+ paid the minimum wage, 1999–2017 and under Conservative and Labour plans for 2020
Source: Figure 5 of “Minimum wages in the next parliament”.
Notes to editors