The low paid are set for substantial pay rises in Britain this October. The Low Pay Commission today published its 2006 report, and the UK government accepted their main recommedations. The DTI press release states:
About 1.3 million workers will be guaranteed higher pay when the minimum wage rises in October. The adult rate of the minimum wage will rise from £5.05 to £5.35 an hour and the youth rate for workers aged 18 to 21 will be increased from £4.25 to £4.45. The Government has also accepted the recommendation of the Low Pay Commission that the rate for workers aged 16-17 years should increase from £3.00 to £3.30.
This is not too much of a surprise; the adult and youth rate increase were outlined a year ago. However the 10% boost to 16-17 year old rates was unexpected (though they got no increase last year). Outgoing LPC chairman Adair Turner writes in his introduction to the report:
Since its introduction in 1999 the minimum wage has been a major success. It has significantly improved the wages of many low earners; it has helped improve the earnings of many low-income families; and it has played a major role in narrowing the gender pay gap. But it has achieved this without significant adverse effects on business or employment creation.
That may well be so - though given the deteriorating state of the UK labour market, one wonders for how much longer claims of no "significant adverse effects" can be made? Perhaps with rising unemployment in mind, Lord Turner sought to dampen expectations for future increases:
We do, however, consider that the phase in which the Commission is committed to increases in the minimum wage above average earnings is complete and, looking forward, the Commission will start with no presumption that further increases above average earnings are required.
Over the four years 2002 to 2006, the adult minimum wage will have increased by 27.4 per cent while (on latest forecasts) average earnings will have increased by 17 per cent. This has been an appropriate upward adjustment from the cautious level at which the minimum wage was originally set, but the Commission has always recognised that the minimum wage cannot increase faster than average earnings indefinitely.
A 27% increase in just four years is a pretty hefty increase. Time to settle for something a little more in line with average earnings growth, it would seem.
UPDATE: The Financial Times has also picked up on Turner's warnings; Increases in minimum wage set to slow:
Business leaders have welcomed strong signals from the Low Pay Commission that future increases in minimum pay rates would be more closely aligned to rises in general wages
...Alan Johnson, trade and industry secretary, said :“The kind of health warning that the Low Pay Commission has given is the right approach. The one thing that would damage the national minimum wage would be if it did damage to jobs.”
...Sir Digby Jones, director general of the CBI business organisation, said the latest minimum wage increase followed a 12 per cent rise between 2003 and 2005. This was “a rate of increase far in excess of average earnings growth” and was the last thing employers needed he claimed. There would be relief at the commission’s conclusion that the minimum wage had now reached an adequate level and that “future increases above and beyond average earnings are no longer necessary,” said Sir Digby.
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