Today the National Living Wage was implemented in the UK making it a legal requirement for employers to pay their workers who are over 25 years old at least £7.20 per hour, which is 10% up from the former national minimum wage requirement. Unfortunately this isn’t the good news it’s being hailed as and its negative effects aren’t being given anywhere near the same amount of attention as its benefits.
Read what Ryan Bourne, Nerissa Chesterfield and Diego Zuluaga of the Institute of Economic Affairs had to say about the National Living Wage and its consequences in this short video shot yesterday. It may be a shock to learn that the Chancellor’s policy is no victory for workers and their rights but instead quite a substantial economic mishap for any of its public proponents to feign ignorance of.
Ryan: Government ministers have lamented the potential loss of thousands of jobs in the steel industry.
Nerissa: Yet today they celebrate the introduction of their National Living Wage which they estimate will result in 60,000 fewer people employed by 2020.
Diego: This new policy will increase the national minimum wage by over 10% this year and peg it to 60% of median earnings by 2020.
Ryan: In doing so, the Chancellor is undertaking a risky experiment with people’s livelihoods.
Nerissa: Low-skilled, vulnerable workers – most in need of a break on the career ladder – will find it more difficult to find entry-level jobs.
Diego: And firms in markets such as retail, pubs and social care are likely to react by slashing other in-work perks, reducing hours or investing in labour-saving technologies.
Ryan: More worryingly, the National Living Wage politicises wage-setting more than ever before.
Nerissa: The Low Pay Commission historically set the minimum wage to avoid job losses…
Diego: But the National Living Wage puts people’s jobs at the mercy of the Chancellor of the Exchequer…
Ryan: who has shown he is willing to tolerate fewer jobs for some, while dishing out higher pay for others.
Nerissa: In all, close to 20% of workers will have their pay determined by government due to this policy.
Diego: And that fact is likely to reduce their willingness to adjust the wage downwards in tough times.
Ryan: Of course, forcing companies to pay more is easier for politicians than addressing their own damaging policies which inflate the cost of living. So whilst the politicians pat themselves on the back over this new living wage policy, spare a thought for those whose opportunities have been diminished.
Using government policies to achieve specific outcomes for specific groups of people in society is a tricky business, especially when one factors in the preciousness of political popularity. It’s simply impossible to measure all of the potential impacts on their own merits of any given policy. Making one change, like instituting a National Living Wage, cannot be expected to hit only the people who will benefit – it changes the whole picture and we have research to prove this.
While no one can be certain of the exact impact the National Living Wage will have, the Chancellor would be well-advised to take a step back, acknowledge the harm it’s going to cause, and look to less destructive ways of making people wealthier.