Impact of 2006 Upratings

2.63 Our estimates of the likely impact of the upratings⁵ of the minimum wage recommended for 2006 are based on the same methodology as that described for 2005 above. We can see from Table 2.6 that in April 2005, around 2.1 million jobs (or about 8 per cent of jobs) held by those aged 18 and over were paid below the minimum wage rates recommended for October 2006. This consists of about 1.9 million jobs held by adults (aged 22 and over) and around 170,000 held by youths (aged 18-21).

Table 2.6 Estimates of Jobs (in Thousands and Percentages) Paid Below the Applicable National Minimum Wage and Forthcoming 2006 Upratings

Source: ASHE with supplementary information, UK, 2005.

Notes:

1. The minimum wage for 18-21 year olds was £4.10 in April 2005, £4.25 in October 2005 and was recommended to be £4.45 in October 2006.

2. The minimum wage for those aged 22 and over was £4.85 in April 2005, £5.05 in October 2005 and was recommended to be £5.35 in October 2006.

3. Beneficiaries of the 16-17 year old rate are discussed in Chapter 3.

⁵ In this section we concentrate on those employees aged 18 and over. 16-17 year olds are discussed in Chapter 3.

2.64 In order to estimate how many workers stand to benefit from the minimum wage increases in October 2006, we need first of all to estimate what would have happened to the wages of the low-paid were the minimum wage to have remained at its October 2004 rate of £4.85 an hour for adults and £4.10 for 18-21 year olds. We again use two assumptions for the counterfactual growth in earnings - that they would otherwise have risen in line with average earnings or that they would have risen in line with consumer price inflation.

2.65 In contrast to our estimates of beneficiaries for the 2005 upratings, we can see from Table 2.7 that the number of beneficiaries estimated for 2006, using the average wage assumption, has not fallen. Indeed, our estimates for 2006, compared with those published in our 2005 Report, have been revised upwards slightly. This reflects the fact that average earnings increases which occurred in 2005, and are now forecast for 2006, are lower than those we assumed at the time of our 2005 Report. Between October 2004 and September 2005, average earnings including bonuses grew by 4.1 per cent compared with a forecast of 4.5 per cent. The Treasury Panel of Independent Forecasters' median forecasts of average earnings growth in 2006 have also been revised down from 4.5 per cent to 4.2 per cent. We now estimate that 1.28 million employees aged 18 and over will benefit from the 2006 upratings. This compares with 1.25 million employees aged 18 and over using the data available when our 2005 Report was published.

2.66 Using the prices assumption, we have revised our estimates of the number of beneficiaries, aged 18 and over, from the 2006 upratings to 1.63 million, down from the 2 million estimated using data available at the time of our 2005 Report.

Table 2.7 Estimates of Jobs (in Thousands and Percentages) Benefiting from the Recommended October 2006 National Minimum Wage Rates

Hourly rates Estimated number (thousands) and percentage of jobs benefiting

Source: LPC calculations based on ASHE including supplementary information, 2004 and 2005.

Notes:

1. The estimates of beneficiaries made at the time of the 2005 Report assumed 21 year olds would be entitled to the adult rate. In these estimates they are assumed to qualify for the youth Development Rate.

2. The 2005 Report estimates are based on ASHE 2004 data and assumptions used in that report. The latest estimates are based on ASHE 2005 data.

3. Estimates of adult jobs and the total number of beneficiaries are rounded to the nearest 100,000. Estimates of youth (18-21) jobs are rounded to the nearest 10,000.

4. Estimates of the percentage of gainers are rounded to the nearest 0.1 per cent.

5. Estimates in February 2005 based on AEI growth including bonuses of 2.1 per cent between April 2004 and October 2004 and forecast increase of 4.5 per cent in 2005 and 2006.

6. Estimates in February 2005 based on RPIX price inflation of 1.2 per cent between April 2004 and October 2004 and forecast increase of 2.3 per cent in 2005 and 2006.

7. Latest estimates based on AEI growth including bonuses of 2.05 per cent between April 2005 and October 2005 and forecast increase of 4.2 per cent in 2006.

8. Latest estimates based on RPIX price inflation of 1.2 per cent between April 2005 and October 2005 and forecast increase of 2.2 per cent in 2006.