Yesterday, the National Minimum Wage (NMW) celebrated its fifteenth birthday. It has not been the disaster some feared – largely because the Low Pay Commission set rates conservatively, taking ability to pay into account – but nor has it entirely helped those it was designed to.
Today, there is pressure to push the minimum upwards. George Bain, the Low Pay Commissions’s first chair, suggests we ought to move towards the Living Wage, a rate set wholly by reference to need rather than its likely employment impact. The Living Wage, at £7.45 nationally and £8.55 in London, is considerably higher than the current £6.19 NMW, and has already attracted support from Ed Miliband and Boris Johnson.
To raise the rate in this way would be a mistake. The NMW has likely slowed the growth of employment in some regions and occupations, such as care services. By raising the cost of hiring further, the policy will only make it more difficult for firms to take on new employees. In particular, it is likely to contribute to the worryingly high youth unemployment rate. The UK labour market has performed relatively well compared with most of Europe. But any substantial increase in the minimum wage would have a negative impact, especially in sectors that employ a high number of low-pay workers.