Minimum wage increases favour older workers

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Increases today in national minimum wage rates means workers aged 25 and over are seeing their pay grow four times faster than the typical worker, while low-paid workers aged 16 to 20 see their minimum wage rates fall in real terms.

From 1 April 2017, workers on the national living wage – the national minimum wage rate for those aged 25 and over – receive a 4.2% hike in earnings, as the statutory rate increases from £7.20 to £7.50 per hour.

Today’s 30p increase means national living wage earners are 1.5% better off in real terms, or £220 per year for a full-time worker, according to analysis by the Resolution Foundation. In contrast, a typical worker’s real-terms pay has fallen 0.4%, or £90 per year, when calculated using average hourly earnings and CPIH inflation.

The findings were released as the Department for Business, Energy and Industrial Strategy (BEIS) launched a nationwide advertising campaign to improve low-paid workers’ knowledge of their rights around the national living wage and the national minimum wage.

TUC analysis claims that the minimum wage for workers aged 16 to 20 is worth less than a decade ago. Measured against CPI inflation, 18- to 20-year-olds working a 40-hour week on the minimum wage receive £250 less in real terms than in 2008; 16- to 17-year-olds are £300 per year worse off. Measured using RPI inflation, the inflation measure favoured in union-negotiated pay settlements, those figures are £690 and £630 respectively.

Frances O’Grady said: “Young workers are getting a raw deal, especially those stuck on the minimum wage. As prices rise, their pay simply hasn’t kept up.

“More and more people rely on the minimum wage, but the pay rates aren’t increasing fast enough. The Government’s target of £9 [for the national living wage] by 2020 now seems a fantasy. The minimum wage needs a serious boost in the coming years, especially for younger workers.”

When former chancellor George Osborne announced the introduction of the national living wage in July 2015, the Government committed to make the rate reach 60% of median hourly earnings by 2020. At the time, this was approximately £9.35.

More recent projections by the Low Pay Commission, taking into account slower growth in average earnings, have projected the 2020 rate for the national living wage to be £8.75.

Conor D’Arcy, policy analyst at the Resolution Foundation, said: “Today’s rise continues the important work the bold policy has achieved since April last year and means that a full-time worker on the national living wage will enjoy a real terms boost of £220 to their pay packet, making a real difference for low earners.

“The pay rise for low-paid earners is in stark contrast to overall poor pay growth, with average pay growth likely to have already turned negative last month.

“With Brexit and rising inflation increasing uncertainty, it is more vital than ever that the Government stands by this policy but also that the Low Pay Commission continues to assess its impact on the labour market.”

Benefits of the Living Wage

Researched released today by Cardiff Business School and the Living Wage Foundation, which has a 3,000-strong network of employers that pay the voluntary Living Wage (£8.45 outside London and £9.75 in London), shows that 93% of accredited employers have benefited from paying the Living Wage.

Katherine Chapman, director of the Living Wage Foundation, said: “This research demonstrates that paying the real Living Wage is not only the right thing to do, but it also makes good business sense.

“Tellingly, 81% of businesses reported that there was no negative impact in recruiting supervisory positions, which helps bust the myth that raising the wages of the lowest paid could have a detrimental impact on other staff; moreover 58% said that implementation of the real Living Wage had improved relations between staff members and managers.”

The research also found that 86% of respondents reported that Living Wage accreditation had enhanced their organisation’s general reputation as an employer.

Over half of employers reported that the Living Wage had improved both recruitment and retention; whilst 76% of large organisations (more than 500 employees) reported improved retention of employees receiving the Living Wage.

Most large employers (78%) also reported that following Living Wage accreditation, staff motivation increased.

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