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Press Notices   >>Back to Press notice index Press Release 22 APRIL 1999 LEVEL OF MINIMUM WAGE MUST REFLECT ECONOMIC CIRCUMSTANCES The Chairman of the Low Pay Commission, Professor George Bain, believes it would have been a mistake to rely on any rigid formula when setting the National Minimum Wage. Writing in the forthcoming edition of Employee Relations, Professor Bain argues that any such formula could not take into account the dynamic nature of the UK labour market and the potential impact on business costs. The Commission’s recommendations were a matter of judgment, based on careful analysis of labour market data and consideration of the views both of employees and employers. Professor Bain focuses on the proposition that the minimum pay level should be half male median earnings, which some claim produces a figure of £4.79. He says that this figure is derived from an ‘apple and pears’ formula, with the full-time hourly earnings of men, including overtime, divided by the hours worked by men and women but excluding overtime. The formula is used to produce a high figure which can serve as a campaigning tool. While the need for such a slogan may be understandable, there are a number of ways of devising a figure for half male median hourly earnings. Professor Bain argues that a more legitimate formula, one that compares like with like, produces a figure of £4.07. He goes on to point out that the figure of £4.07 includes overtime, shift premia and regional allowances, which are not included in the National Minimum Wage. For a more sensible comparison between median earnings and the National Minimum Wage those elements would need to be removed. Professor Bain says this means that the Commission’s ‘recommended rate of £3.60 is not very far off the figure for half male median earnings calculated on the same basis.’ But Professor Bain says that, while the formulaic calculations may be interesting for comparative purposes, they can never fully take account of ‘the complexities of a modern labour market’. The Low Pay Commission is determined that its work will continue to be based on a commitment to a wide-ranging consultation process and a thorough understanding of the current labour market. It was these foundations that ensured the success of its First Report. Notes to Editors 1. The Low Pay Commission is a statutory body whose role is to advise the Government on the National Minimum Wage. 2. The Commission has produced four reports. These are available from the Stationery Office Bookshops or the Commission’s website at: http://www.lowpay.gov.uk 3. The members of the Low Pay Commission are: Adair Turner (Chairman), Vice Chairman, Merrill Lynch Holdings Ltd; Professor William Brown CBE, Professor of Industrial Relations, University of Cambridge; David Coats, Head, Economic and Social Affairs Department, Trades Union Congress; John Cridland, Deputy Director-General, Confederation of British Industry; Paul Gates OBE, General Secretary, National Union of Knitwear, Footwear and Apperal Trades; Ian Hay OBE, Chairman, Food Trade Association Management Professor David Metcalf, Professor of Industrial Relations, London School of Economics; Margaret Prosser OBE, Former Deputy General Secretary, Transport and General Workers Union; and Angie Risley, Human Resources Director, Whitbread PLC. 4. The National Minimum Wage for those over 21 is £4.50 per hour. For those aged 18 to 21 or over 21 but in the first six months of a new job with a new employer and receiving accredited training, the rate is £3.80 per hour. The Government has accepted the Commission's recommendation that subject to confirmation in early 2004 - there should be further increases to £4.85 and £4.10 from 1 October 2004. Low Pay Commission Elizabeth House 39 York Road London SE1 7NQ Tel. 020 7855 4553 Low Pay Commission Terms of Reference The Commission is asked to: i) monitor and evaluate the introduction and impact of the national minimum wage, with particular reference to the effect on: pay, employment and competitiveness in low paying sectors and small firms; particular groups of workers, such as young people, women, ethnic minorities, homeworkers, people with disabilities and voluntary sector workers; pay structures, including the effect on differentials and different pay systems; and training. ii) review the position of 21 year olds following the introduction of the development rate for young people and in particular whether they should be covered by the adult rate. In making its recommendations, the Commission should have regard to the wider economic and social implications; the likely effect on employment and inflation; the impact on the costs and competitiveness of business, particularly the small firms sector, and the potential costs to industry and the Exchequer. The Commission is asked to report to the Prime Minister and the Secretary of State for Trade and Industry by December 1999.   Back to top