The minimum wage
A national minimum wage sets the minimum hourly wage rate that is acceptable in law. A national minimum wage has been law in the UK since 1999, when the adult hourly rate was set at £3.60.
The aims of a national minimum wage
The long-term aim of a minimum wage is to remove the problem of poverty pay, which exists when the earnings from paid work do not result in a living wage and fail to push people out of poverty.
Low pay can result from a number of labour market failures, including:
- Lack of access to the labour market, as a result of barriers to entry including discrimination.
- Lack of bargaining power by individuals in uncompetitive labour markets, such as where there is one employer, a monopsonist. In this case the employer can adopt a ‘take it or leave it’ attitude.
- Lack of skills leading to very elastic demand for labour, so that a ‘higher’ wage would reduce demand, hence workers have to accept this wage, or remain unemployed.
- Inward migration from low-pay countries, where workers are prepared to accept extremely low wages, for often short periods of time, which this drives down the wages for indigenous employees.
By 2015, the adult rate had risen to £6.70p per hour and the rate for 18-20 year olds to £5.30p. In 2004, following a recommendation by the Low Pay Commission, a minimum wage of £3.00 per hour was introduced for under 18 year olds, and by 2015 this rate had risen to £3.87.
In 2016 a new ‘living wage‘ was set for those over 25, at £7.20 per hour, rising to £7.50 per hour in April 2017. Although this is the ‘legal’ level of the living wage, there are higher voluntary rates of £8.45 for the UK, and £9.75 for London.