One of the notable achievements of the National Minimum Wage has been that, for the best part of the last decade, it has ensured, probably for the first time, that the wages of the lowest paid in the UK have shown a modest but meaningful uplift when compared to increases in the average wage and with no consequent loss of jobs. This has helped to improve the pay of a number of groups of workers and to narrow the pay gap between men and women but has made no impression on the gap between the highest and lowest wage earners. The achievements of the minimum wage are often most clearly illustrated in graphic form. For example, Figure 2.6 on page 24 shows starkly the effect on the pay of the lowest paid by contrasting the situation before and after the introduction of the National Minimum Wage; and Figure 3.2 on page 72 graphically illustrates the effect on the gender pay gap.
This year, when we met in January 2008 to review the available evidence as a prelude to agreeing our recommendations, we were faced with a situation more complex than usual. Looking back over the year gone by, most of the evidence generated supported a positive and optimistic view of the labour market. However, looking forward to 2008–09, the prospects looked much less positive as a result of the uncertainty brought about by the crisis in global financial markets. In the circumstances and after much discussion and debate, we took the view that a degree of caution was advisable and this is reflected in a recommendation that is lower than the predicted increase in average earnings. We are conscious, above all, of the need to protect jobs.
Ten years ago, as the minimum wage was about to be introduced, it was just this fear of job losses that dominated discussion. Indeed in June 1997, the Economist magazine printed an article on Britain’s forthcoming National Minimum Wage entitled ‘Devilish Details’. The article concluded with the following observation, “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.” At that time the Economist was not alone in being sceptical about the likely impact of a National Minimum Wage on the UK labour market. In fact, since the introduction of the National Minimum Wage in April 1999, the number of jobs in the whole economy has increased by over two million and there are well over half a million more jobs in the sectors most likely to be affected. So far, therefore, the evidence suggests that either we have been very lucky, or the Low Pay Commission is packed with men and women blessed with an unusual degree of wisdom, or the author of the Economist article got it wrong. Of course it could be all three.
In fact, since the introduction of the National Minimum Wage, the Low Pay Commission has been at the forefront of the search for evidence of any damage caused by the minimum wage to the economy or to jobs. So far we have not found any significant negative effects, either in the work we have done ourselves or in the work we have commissioned from others. And we have looked long and hard in all the places that are most likely to reveal such an effect. This is not to say that the minimum wage is incapable of negative impact; merely that, so far, the UK minimum wage has successfully avoided the dangers.
Indeed, this year we have commissioned a further series of studies (details can be found in Appendix 2 to this report) to inform our recommendations for next year. These projects will look in particular at the effect of the larger than average earnings increases of 2003 onwards across a wide range of variables including staff turnover and retention, employment and hours, competitiveness, vulnerable sectors and regional impact. I expect that the findings of these projects will be a significant factor affecting our views as we ponder the recommendations we will make to Government about the minimum wage this time next year.
Next year we are also likely to be taking a closer look at the impact of the minimum wage on young workers. In particular, at the prompting of the Prime Minister, we will be asked to examine the position of apprentices, many of whom are currently not covered by the legislation.
This year’s report is deliberately shorter and more concise than most previous Low Pay Commission reports. We hope that this will make our work a little more accessible to the non-academic reader, but I am conscious that reading our report from cover to cover is likely to remain a minority activity, whatever changes we make. If you have views on the streamlined format of this report, or suggestions as to how we might improve future reports, we would be delighted to hear from you.
With the retirement last year of six long-serving Commissioners, the make up of the Low Pay Commission has changed markedly since this time last year. The six new Commissioners have proved to be worthy successors to their eminent predecessors and just as committed to an evidence-based approach. It has been a pleasure to work with such colleagues, as it has been to work with the members of our Secretariat, who have served us well.