Minimum Wage restored to 2005 level

2 October 2014

The National Minimum Wage (NMW) for adults rose yesterday (Oct 1) from £6.31 to £6.50. While in real-terms (measured against CPI inflation) this was the first rise in six years, the NMW remains 4.2% below its peak in October 2008, and is roughly equivalent to what it was in 2005.

If the NMW had continued to rise at its pre-crisis rate, it would now be £8.50.

Research by the Resolution Foundation has shown an increase in the NMW affects more people than it used to, with the number of workers on NMW having doubled since its introduction; in 1999 the figure stood at 600,000, whereas today it is 1.2 million.

Around 2.5 million workers (one in ten) earn within 50p of the NMW.

The research also shows that not only are more people being paid poverty wages, they are stuck on them for longer periods of time. Almost one in four minimum wage workers had been stuck on the NMW for 5 years, and 13% for 10 years or longer.

While an increasing minimum wage is laudible, progression beyond the base minimum is also important.

Although the introduction of a NMW has reduced the number of people in extremely low pay, it has had the effect of a clustering around the wage floor.

Matthew Whittaker, chief economist of the Resolution Foundation, said; “The increased ‘stickiness’ of jobs on the minimum wage points to a wider problem of low pay in Britain. Tackling the growth and persistence of low pay is a key test of whether this will be a shared recovery.”

In the climate of low-pay and stagnant wages, it is the NMW that is setting the pay precedent, with more and more workers being dragged downwards towards it.

This highlights the need for more and stronger collective bargaining, setting the reference points for pay at a fair level and reducing income inequality.

To find out more about collective bargaining, the IER publication Reconstruction After the Crisis: A Manifesto for Collective Bargaining is available for purchase.