Transcript The National Minimum Wage: Current and Long

The National Minimum Wage:
Where has it come from and
where might it go?
Creating a High Productivity, High Wage
Greater Manchester
The New Economy
The Boardroom, Manchester Growth Company, Churchgate House,
Oxford Street, Manchester
Tim Butcher
Chief Economist and Deputy Secretary
Low Pay Commission
1
Overview
1. How is the NMW
set?
•
•
The LPC: what is it? What does it do?
The NMW: what is it? How it is set?
2. NMW: impact
•
•
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Phases of the NMW
Impact on earnings and employment
Impact on employment (and hours)
Impact on small businesses and lowpaying sectors
3. Future path and
conclusion
•
•
•
Factors determining future path
Reflections on the Living Wage
Conclusion
2
The Low Pay Commission and the
National Minimum Wage
3
Low Pay Commission
• Set up in 1997 to define the National Minimum
Wage and recommend its introductory level.
• Independent advisory Non-Departmental Public
Body (National Minimum Wage Act in 1998).
• No specific aim/objective under the NMW Act
1998, but given specific remit by Government
each year.
• Independent of Government
• Social Partnership
– 9 Commissioners
– Balance - 3 independents, 3 with employer experience
and 3 with union experience
– Appointed as individuals (NOT MANDATED) through
advertised public appointments process
– All Commissioners have equal vote
– To date, always unanimously agreed recommendations
• Small secretariat (Analysis, Policy and Admin)
4
Independents
David Norgrove, Chair
Professor Richard Dickens,
University of Sussex
Professor Sarah Brown,
University of Sheffield
Kay Carberry, Assistant
General Secretary, TUC
John Hannett, General
Secretary, Usdaw
Brian Strutton, GMB
National Secretary
Employee
representative
background
Employer
representative
background
Neil Carberry, Director of
Employment and Skills, CBI
Peter Donaldson, Managing
Director, D5 Consulting Ltd
Clare Chapman, non-executive
director and Remuneration 5
Committee Chair at Kingfisher PLC
What is the National Minimum Wage?
• It is a WAGE FLOOR NOT A ‘LIVING WAGE’
• It is NATIONAL (the same across England, Scotland,
Wales and Northern Ireland)
• No differences by industry, occupation or firm size
• It is HOURLY (with special arrangements for piece
rates)
• It is CASH (benefits-in-kind except accommodation
offset do not count)
• It is SIMPLE (just four rates)
• It does vary by AGE (and apprenticeship)
• It is COMPREHENSIVE – it covers nearly all workers and
types of contract, with few exemptions
6
Recommending the Rate
7
Finding the right level
• When the NMW was introduced the two most major
concerns were that it would lead to:
– Job loss
– Wage inflation (which would fuel price inflation)
• “…coming up with a minimum wage that will not
seriously harm the economy, and destroy jobs, will
require the wisdom of Solomon – or extraordinary luck.”
The Economist (5 June 1997)
• The NMW should:
– support a competitive economy
– be set at a prudent level
– Be simple and straightforward
– Make a difference
Low Pay Commission First Report (1998)
8
Evidence-based
• Evidence-based judgement not a formula
–
–
–
–
–
The impact so far
State of the economy
Prospects for the economy
Stakeholder views
Impact of other Government legislation
• Evidence gathering
–
–
–
–
–
–
In-house analysis
Commissioned and independent research
Formal consultation (Written and Oral evidence)
Visits around the UK
Secretariat meetings with stakeholders
International developments
9
Phases of the NMW
10
The Rates of the National Minimum Wage
Adult Rate (21+)
£6.50
Youth Development
Rate (18-20)
£5.13
£6.31
6.50
16-17 Year Old Rate £3.79
Apprentice Rate
£2.73
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7.00
6.80
6.60
6.40
6.20
6.00
5.80
5.60
5.40
5.20
5.00
4.80
4.60
4.40
4.20
4.00
3.80
3.60
1999 April
1999 July
1999 October
2000 January
2000 April
2000 July
2000 October
2001 January
2001 April
2001 July
2001 October
2002 January
2002 April
2002 July
2002 October
2003 January
2003 April
2003 July
2003 October
2004 January
2004 April
2004 July
2004 October
2005 January
2005 April
2005 July
2005 October
2006 January
2006 April
2006 July
2006 October
2007 January
2007 April
2007 July
2007 October
2008 January
2008 April
2008 July
2008 October
2009 January
2009 April
2009 July
2009 October
2010 January
2010 April
2010 July
2010 October
2011 January
2011 April
2011 July
2011 October
2012 January
2012 April
2012 July
2012 October
2013 January
2013 April
2013 July
2013 October
2014 January
2014 April
2014 July
2014 October
Uprated value of National Minimum Wage (£ per hour)
Between 1999 and 2014, the adult NMW has grown
faster than average earnings and price inflation
Phase 1:
Caution
Phase 2: Above average
earnings increases
Total AWE
CPI
Phase 3: No presumption of
increases above average earnings
RPI
GDP
7.00
£6.85
6.80
90.4%
6.60
80.6%
6.40
6.20
6.00
£5.86
62.9%
5.80
£5.62
5.60
56.0%
5.40
5.20
£5.01
5.00
39.1% 4.80
4.60
4.40
4.20
4.00
3.80
3.60
Month
Adult NMW
Source: LPC estimates based on ONS data, AEI including bonuses (LNMQ), 1999, AWE total pay (KAB9), 2000-2014, RPI (CHAW),
1999-2014, and CPI (D7BT), 1999-2014, monthly; and GDP (YBHA), 1999-2014, quarterly, seasonally adjusted (AWE, AEI and GDP
only), UK (GB for AWE and AEI).
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The NMW has been characterised by a
flexible approach
Phases of the NMW
Initial
caution,
1999-2001
Above average
earnings
growth
increases,
2001-7
“We have taken a prudent approach in
choosing the initial rate, to find the
balance between improving low pay and
avoiding damage to efficient businesses
and employment opportunities” George
Bain, the Chair of the LPC (1998)
“…we believe that there is a case for
increasing the effective rate of the
minimum wage, implying a series of
increases for a number of years above
average earnings…” Fourth Report (2003)
Caution again
in uncertain
times, 200713
“… we have no presumption that further
increases above average earnings are
required” LPC 2006 Report
again little evidence of employment effects
up to 2013 but awaiting further evidence of
the impact of recession
A new
phase?
2014 - ?
“… a move towards restoring the real
value of the NMW” LPC Report 2014
13
Impact on Earnings and
Employment
14
Thus, the bite at 53.9% is its highest ever…
Bite of applicable minimum wage at median earnings (per cent)
60
60
Largest
uprating
58
Start of the
2008-09
recession
58
56
56
53.5
54
53.9
54
51.2
52
52.8
50
53.2
52
50
51.0
48
48
46.2
44.8
46
44
46
45.7
44
44.4
42
40
1999
42
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
40
2014
April of each year
22+
21+
Source: LPC estimates based on ASHE without supplementary information, April 1999-2004; ASHE with supplementary information, April 20042006; ASHE 2007 methodology, April 2006-2011; and ASHE 2010 methodology, April 2011-2014, standard weights, UK.
Note: 21 year olds became entitled to the adult rate in October 2010.
15
… and across all sizes of firm
and the economy
70
Low-paying Sector
67.2
65
65
60.1
60
60
54.9
55
55
53.2
50
50
1999
2008
2010
2012
2013
2014
Cleaning
81.9
90.1
89.3
93.5
92.5
92.7
Hospitality
78.6
85.3
85.4
86.9
88.1
88.1
Hairdressing
83.5
80.4
83.2
85.8
84.4
85.3
69.6
80.9
82.8
84.2
83.5
Childcare
Retail
69.5
76.7
76.6
79.5
78.1
79.4
Social care
60.8
72.2
73.8
76.8
78.4
78.7
Agriculture
67.5
71.7
71.5
75.1
71.8
72.9
Textiles
62.1
69.9
71.3
71.7
71.0
71.0
Leisure
59.3
66.8
67.4
69.5
70.8
71.0
67.7
68.4
68.0
68.1
70.9
49.8
Employment agencies
45
45
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
40
2000
40
1999
NMW as a proportion of median earnings for those aged 22 and
over (per cent)
70
Food processing
55.6
65.2
68.0
70.4
68.4
70.0
Low-paying sectors
67.5
75.5
76.6
79.4
78.9
79.7
Non low-paying sectors
42.2
45.6
45.2
46.0
45.9
46.2
Total
47.1
51.2
51.4
52.8
52.5
53.2
April of each year
Micro
Other small
Medium
Large
All
Source: LPC estimates based on ASHE without supplementary information, April 1999-2004; ASHE with supplementary information, April 2004-2006;
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ASHE 2007 methodology, April 2006-2011; and ASHE 2010 methodology, April 2011-2014, standard weights, UK.
Note: 22 year olds +, adult rates, in April of each year.
About 1.02 million (4.0%) paid at the minimum wage and about
1.66 million (6.6%) paid less than £6.50 in April 2014. 208,000 were
paid less than the NMW
Source: Annual Survey of Hours and Earnings (ASHE) 2010 methodology, low pay weights, 2014.
Note: Five pence bands except where stated otherwise (bands labelled by minimum pay amount)
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Indeed, the low paid have fared much better
than in previous recessions and recoveries
Annual hourly
wage growth
(%)
Percentile
Mean
5
th
th
th
10
25
Median
th
(50 )
70
th
90
th
1975-79
13.5
14.3
12.9
13.3
13.4
13.6
13.9
1979-82
15.5
13.6
13.7
14.3
15.2
16.3
17.1
1982-89
7.7
6.8
6.8
7.1
7.7
8.1
8.7
1989-92
8.5
7.5
8
8.2
8.3
9
9.5
1992-97
3.2
2.4
2.7
2.8
3.3
3.6
3.7
1997-04
4.1
4.9
4.2
3.5
3.5
3.6
4.2
2004-08
3.7
4.4
3.9
3.9
3.6
3.4
3.4
2008-11
2.2
2.4
2.0
1.9
1.9
2.0
2.0
2011-14
1.0
1.9
1.9
1.4
1.5
1.2
0.6
1970s Incomes policy
Source: LPC estimates based on NES and ASHE, UK, 1975-2014.
NMW
18
Job growth across many low-paying sectors has been
faster than in the whole economy
All industries
2014 Change on 2013 Change on 2007 Change on 1998
September
September
September
September
000s
000s
%
000s
%
000s
%
28,073
959
3.5
743
2.7
3,371
13.6
All low-paying industries
9,665
401
4.3
641
7.1
1,322
15.8
Consumer services
5,911
178
3.1
203
3.6
773
15.0
Retail
3,214
24
0.8
-93
-2.8
88
2.8
Retail (excluding motor)
2,696
-22
-0.8
-107
-3.8
77
2.9
Hospitality
2,035
132
6.9
213
11.7
449
28.3
Leisure, Travel and Sport
536
21
4.1
78
17.0
189
54.5
Hairdressing
126
1
0.8
5
4.1
47
59.5
1,441
85
6.3
190
15.2
366
34.0
Cleaning
669
7
1.1
64
10.6
73
12.2
Employment agencies
772
78
11.2
126
19.5
293
61.2
Trade
655
50
8.3
-10
-1.5
-348
-34.7
Food processing
352
14
4.1
-5
-1.4
-78
-18.1
Agriculture
227
42
22.7
18
8.6
-41
-15.3
76
-6
-7.3
-23
-23.2
-229
-75.1
1,658
88
5.6
258
18.4
531
47.1
Residential care
689
11
1.6
44
6.8
183
36.2
Domiciliary care/childcare
969
77
8.6
214
28.3
348
56.0
Business
Textiles, clothing
Government
Source: ONS Employee Jobs, not seasonally adjusted, Great Britain, 1998-2014.
Note: The social care and leisure, travel and sport sectors do not align exactly to the LPC's specification of the lowpaying sectors due to the breakdowns of employee jobs provided by the ONS.
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Little impact on employment to date
• In general, the lowest paid (on the minimum wage) have
had higher wage increases than those at the median
• The minimum wage has covered about 1 million workers (45%) every year
• The bite, its value relative to the median is about 53%
• Little evidence of any adverse impact on employment of
individuals or on employment levels in the lowest-paid
areas, although there is some weak evidence of slower
growth rates in those areas
• Evidence suggests that some of the additional wage costs
may have been absorbed with a small reduction in hours
worked, a small increase in prices to consumers and a
squeeze on profits, however, this has not led to an increase
in business failure.
• Non-wage costs may also have been cut and pay structures
adjusted.
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The Future Path
21
Although NMW has risen faster than inflation
since 1999, it has not since October 2007
6.90
£6.81
23.4%
6.80
6.80
£6.74
6.70
6.70
22.0% £6.63
6.60
6.60
20.1%
6.50
6.40
6.50
6.40
17.8%
6.30
6.30
£6.21
6.20
6.20
6.10
6.10
12.6%
2014 October
2014 July
2014 April
2014 January
2013 October
2013 July
2013 April
2013 January
2012 October
2012 July
2012 April
2012 January
2011 October
5.30
2011 July
5.30
2011 April
5.40
2011 January
5.40
2010 October
5.50
2010 July
5.50
2010 April
5.60
2010 January
5.60
2009 October
5.70
2009 July
5.70
2009 April
5.80
2009 January
5.80
2008 October
5.90
2008 July
5.90
2008 April
6.00
2008 January
6.00
2007 October
Uprated value of National Minimum Wage (£ per hour)
6.90
Month
Total AWE
CPI
RPI
GDP
Adult NMW
Source: LPC estimates based on ONS data, AEI including bonuses (LNMQ), 1999, AWE total pay (KAB9), 2000-2013, RPI
(CHAW), 1999-2013, and CPI (D7BT), 1999-2013, monthly; and GDP (YBHA), 1999-2013, quarterly, seasonally adjusted22
(AWE, AEI and GDP only), UK (GB for AWE and AEI).
The real value of NMW is about 4% lower than in
2007 but it is at its highest relative level
7.50
7.50
Adjusted adult rate of NMW (£ per hour)
7.00
£6.88
£6.92
£6.74
7.00
£6.50
£6.67
6.50
6.50
6.00
5.50
£6.19
£6.27
6.00
£5.81
5.50
£5.62
£5.01
5.00
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
5.00
2014
October of each year
RPI adjusted
CPI adjusted
AWE adjusted
Source: LPC estimates based on ONS data, AEI including bonuses (LNMQ), 1999, AWE total pay (KAB9), 2000-2014,
RPI (CHAW), 1999-2014, and CPI (D7BT), 1999-2014, monthly; 1999-2013, quarterly, seasonally adjusted (AWE and 23
AEI only), UK (GB for AWE and AEI).
And that is because real average consumer wages have
fallen by 9 per cent since 2009 and are no higher than 10
years ago
14.00
14.00
£13.51
13.50
13.50
£13.09
13.00
13.00
£13.00
Median hourly earnings (£)
12.50
12.00
12.50
£11.85
£11.31
12.00
11.50
11.50
£11.28
11.00
11.00
10.50
10.50
10.00
£10.60
10.00
9.50
9.50
9.00
9.00
8.50
8.50
8.00
7.50
1999
8.00
£7.70
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
7.50
2014
April of each year
Nominal earnings (ASHE median)
CPI adjusted
RPI adjusted
Source: LPC calculations based on ONS data, ASHE mean hourly pay; AEI including bonuses (LNNC), 1989–2000, and
AWE total pay (KAC3), 2001-2012, monthly, seasonally adjusted, GB; and RPI (CZBH) and CPI (D7G7), monthly, not
seasonally adjusted, UK, 1989-2012.
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Future Path
• In our 2014 and 2015 Reports we said that for a
significantly faster increase in the minimum wage
to be achievable without risk to the employment
of the low paid we believe it would be necessary
to see:
• rising real wages in the economy more generally
[and that a sustained increase in real wages
depends on increased productivity: for wage
increases to be sustainable they must be affordable,
which generally requires an overall increase in
output per head];
• stable or rising employment, particularly in lowpaying industries and small firms;
• and an expectation of sustained economic growth
25
Future Challenges, 2015-2020
• The new Government commits to the NMW
– Pass a law to ensure a Tax-Free Minimum Wage in this
country (no-one working 30 hours or fewer on the NMW will
pay income tax)
– The Personal Income Tax Allowance will automatically rise in
line with the National Minimum Wage.
– Pledge to raise the Personal Tax allowance to £12,500 by
2020/21 tax year (about £8 an hour for a 30 hour week)
• Non-compliance and enforcement
• Living Wage
• Regional Minimum Wages?
– Devolution in Scotland (but NMW not in Smith Commission)
– A minimum wage for London?
26
The Living Wage
27
Thoughts on the NMW and Living Wage
• NMW is a WAGE FLOOR NOT A ‘LIVING WAGE’
–
–
–
–
It is grounded in the labour market
It is paid to the individual
It is not based on a person’s or their household’s needs
It is hourly (a Living Wage should be weekly/monthly)
• NMW is part of a three-prong strategy to ‘Make
Work Pay’ and provide a ‘living wage’
– National Minimum Wage
– In-work tax credits
– Less generous out of work benefits
• Living Wage voluntary not mandatory
• It has a role to play as a campaigning measure
– “We also continue to believe that employers who are not
driven by business pressures to pay the NMW should be
encouraged to pay more” Low Pay Commission 2015 Report
28
Conclusions
• The recommended increase in the NMW for October
2015 was 3% to £6.70
• The bite of the NMW reached its highest level in April
2014 (and will likely be higher in April 2015 and April
2016)
– 53.9% for adults 21 and over
• The coverage level was at its highest in April 2014 (and
will likely be higher in April 2015 and April 2016)
– 4.0% or 1.02 million (5p band)
• There has been some restoration of its real CPI value
against both CPI and RPI over the last year
• Employment in the low-paying sectors, in small firms and
across low-paid workers appears to have held up.
29
Even The Economist appears comfortable
with minimum wages
“Evidence is mounting that moderate minimum wages
can do more good than harm.”
“Bastions of orthodoxy, such as the OECD, a richcountry think tank, and the International Monetary Fund
now assert that a moderate minimum wage does not do
much harm and may do some good. Their definition of
moderate is 30-40% of the median wage. Britain's
experience suggests it might even be a bit higher. The
success of the Low Pay Commission points to the
importance of technocrats rather than politicians setting
wage floors.”
The Economist (24 November 2012)
30