20 Years Later Minimum Wage Shows No Negative Effects on the Economy
Imagine this: You’re looking for work but the only positions that are available based on your experience pay a few pounds an hour.
With no other option, you’re left working for an employer that barely pays a living wage. As a result, you have to make sacrifices in other areas just to afford basic amenities like food and housing. It wasn’t that long ago that this was the reality for many people in the UK.
The UK Minimum Wage
In the mid 90s, an employer in the UK could advertise a position for an hourly wage of just £2. Such job offers are now largely in the past, thanks to the national minimum wage that took effect in April 1999.
The national minimum wage was a key policy for the Labour party. The legislation mandated that adults be paid at least £3.60 an hour. Firms that paid less than the statutory minimum faced fines up to £5,000. Since that time, the minimum wage has risen to £8.21 an hour for people aged 25 and over.
Arguments against the minimum wage – including those voiced by many in the Conservative party – maintain that such policies lead to job losses. If an employee’s hourly productive output is lower than the minimum wage, employers have an incentive to get rid of workers or even outsource production entirely. Both damage job growth and increase unemployment rates. Others argue that increases in the minimum wage are more likely to hurt small businesses than help them. Business owners may reduce hours to make full-time jobs part-time, just to afford overhead costs.
The arguments against setting a minimum wage certainly sound convincing. But what does the actual data say now that the policy has been implemented for over 20 years?
The Minimum Wage Has a Positive Effect on the Labour Market
The good news is that increases in the minimum wage appear to have no negative effects on jobs. Instead, it has had a positive effect on the labour market, according to the Low Pay Commission. The independent body estimates that the total benefit to workers of minimum wage increases is £60 billion. The bottom 1% of workers earned an additional £5,000 in 2018, which is more than they otherwise would have been paid, thanks to the minimum wage increase.
Unemployment levels in the UK went down to 3.9% in the three months to January 2019, which is the lowest point since 1975. And the participation rate or the percentage of employed workers is at its highest ever. It’s possible that changes in the national minimum wage may have led to some degree of job displacement, but there are many other factors at play. What’s clear is that setting a minimum wage has benefited the economy as a whole.
‘There aren’t many policies that are hugely controversial at birth but which go on to become widely recognised triumphs’, said Torsten Bell, director of the Resolution Foundation. He goes on to add that the minimum wage has brought an end to many aspects of earnings inequality in the last 20 years.