Analysis on the Impact of Minimum wage in the labour market and economy of the United Kingdom
Workers around the world are being paid for the amount of work they have done. Over the years changes on the pay sector have dramatically changed and there was the introduction of the minimum wage in the labour market. Minimum wage, according to (2006) is the monthly or hourly fee to the employees and workers. The first country that passed a legislation regarding the minimum wage is New Zealand in the year 1896, followed by Australia in 1899 and the United Kingdom in 1902. (, 2005).
In the United Kingdom, the minimum wage started way back in the 1524, wherein small towns are having ordinance regarding the wage levels. And on the year 1909 the Trade Boards Act was created, it is composed of For Trades Board in which it sets the minimum wages according to the sector that the employee is working, it was expanded substantially at the end of the Second World War the name was changed to Wage Councils. The Wage Council was nullified in 1993. And in April 1999, Tony Blair’s government presented the national minimum wage having a rate of £3.60 per hour for workers aged 22 up. The present minimum wage of adults in the United Kingdom is £5.35. Workers aged between 18 and 21 have the minimum wage of £4.45 per hour and the minimum wage for workers under the age of 18 is £3.30 per hour. (, 2006)
The reaction regarding the minimum wage varies, there are people in favour for it and there are also opposes it. (2006) discussed the Pros and Cons of Minimum wage. Some of the reasons why a number of economists agree to abolish minimum wage are: It costs thousand jobs for the economy, teenagers, interns and part time workers have limited options and opportunities and removing the minimum wage will allow the organisations to attain more efficiency and lower prices. However, there are also some people that are not in favour for the abolishment of minimum wage, they believe that adults that are working in jobs with a minimum wage are probably going to lose it to young workers, the employees needed a minimum income in order to survive and pay for the bills and organisations and businesses have bigger chances of abusing the labour market.
The aim of this paper is to discuss the effects of having a minimum wage in the labour market and the economy of the United Kingdom. The literatures provide insights on the impacts of minimum wage in the society and economy as a whole.
The legislation of minimum wage in the United Kingdom dates back as far as in the 1500s, as mentioned earlier. Different studies regarding this issue have already been made over the past years. Some economists are not in favour for the legislation and some are. But, does the minimum wage have an impact in the labour market of the UK? And if it does, are the impacts favourable for the minimum wage workers and the labour market as a whole?
According to the (2003) it is always assumed that implementing a minimum wage would create lower level of employment in the formal sector and higher unemployment and enlargement of low wages in the informal sector of the economy. Moreover, the issue regarding minimum wage become controversial and a number of studies were developed. Some of the researches have found negative effects of minimum wage in specific groups such as the youth and disabled persons, on the other hand there are some studies that determined that the effects on employment is weak or even the reverse. As a whole the effects of minimum wage in employment varies between countries and in an industrialised nation like the UK, there is little effect on the employment.
(1998) has reported that when the government announced its minimum wage, the 16 and 17 years old where excluded. He pointed out that 70 percent of the young people ages below 18 are usually working part-time, some of these kids are even working in order to “keep body and soul together.” He argues that if these kids do not have a minimum wage they will be most likely be exploited by their employers. Having minimum wage in all age brackets of workers have positive impacts on the businesses. (1996) discussed that the firms will manage more carefully their employees that are paid above the minimum wage in order to raise a better performance. It will most probably elevate cooperative labour-management relations by having better communications and inclusion of the workers in the business. Minimum wage will ameliorate the incentives that the workers receive, motivate some of the employees to sign off benefits and participate in the labour market. On the other hand, wrote that although sensible national minimum wage can lower the inequality of the wages without losing jobs it will not help in lessening poverty which is due to lack of work and not low wages.
According to the (2005) the impact of the national minimum wage in the labour market of the United Kingdom is generally positive. As a whole the labour market are continuing to be healthy and there is an increase in the employment rate, at the same time decrease in the unemployment rate. The total existing weekly work hours has also increased. And with the low inflation and interest rates, the pay settlements are subdued in a relative manner. As a whole the employment has raised especially in the sectors that are directly affected by the National Minimum Wage. And also there is a considerable increase in the sector of low-paying jobs. Moreover, after the introduction of the minimum wage there is a significant diminish of unemployment in all age groups with the exception of 16 and 17 years old. The minimum wage has no relevant negative impact in the labour market.
However, the increase of minimum hourly rate of £4.50 to £4.85 will have a great impact on the firms in the United Kingdom. According to the (2004), a quarter of 520 companies that were surveyed have said that there would be a considerable effect in terms of costs and bigger firms are expecting the most damaging impacts such as jobs and hours will be cut in order to balance the costs. The businesses that would be greatly affected by the increase in minimum wage are the retail, hotels and restaurants.
Income and wage inequality is one of the issues different sectors of organisations and the government of the United Kingdom is facing. Minimum wage is legislated so that abuse of some employers could be reduced. But does the national minimum age have an effect on the income and wage inequality of a number of workers?
Inequality in payment comes in different forms; there is the gender, age and racial inequality. As mentioned earlier in the case of students working part-time, a number of them experience inequality in payment, by having a national minimum wage for that particular age bracket; abuse of some employers will be reduced.
Furthermore, the International Labour Review discussed that the minimum wage can be an effective tool in reducing the male-female earning differentials. And through the minimum wage legislation it has the potential to address the scope and root of discrimination in the structure of the firms. The paper also identified the six categories of causal factors:
· Component wage- women are always assumed to be secondary earners or have the means in getting family subsidies. By having a minimum wage it raises floor from wage structure towards necessary wages in order to cover the cost of reproduction by a single adult.
· Powerful employer- women’s domestic responsibilities are often postulated as the only job they are good at in which inhibit the employment options. Minimum wage reduces sanctions of looking for non-standard jobs.
· Weak representation- women are always underrepresented in organisations. Minimum wage can provide a shift in the representation in the work area.
· Job segregation- women and men can be seen occupying different jobs. The minimum wage can decrease the gap of wage between jobs that are dominated by male and jobs that are dominated by females and could set up a new basis for the wages of females especially when seeking for employment.
· Social value placed on different types of skills- care work are always valued as low in the wage economy. Minimum wage can decrease the disparity in the value between traditional work and care work.
· Social hierarchies- hierarchies imposes the dominant role of men in the society. Minimum wage can be the foundation in challenging the gender hierarchies.
In addition, (2002) discussed that the national minimum wage has been efficient in increasing the earnings in the lowest-paid workers. However, in the overall wage inequality, the impact of national minimum wage is rather little, there is also no noticeable impact one the 10th percentile even when the national minimum wage impact is at its largest. The authors identified the two reasons for the small impact in wage inequality: the first one is that the minimum wage was set in a low degree, in which it affects less than 10% of workers. And secondly, the spill over effects is not even existent.
In another study wherein and (2004) are the authors, the results were almost the same with the study above. The result of the research was the National Minimum wage in the United Kingdom also has a small impact in the wage inequality in the United Kingdom because it is set in a low level in which it has very minimal spill-over effects. A reason on a small spill-over effect is that the number of workers affected was small and the large expectation of the national minimum wage.
In contradiction, a study by , and (2003) have resulted that the minimum wage have increased a number of home care workers that is the cause of a huge wage compression of the lower end of the allocation of wages, therefore it reduced the wage inequality.
The implementation of a national minimum wage in United Kingdom in the 90s faced a number of controversies. Some people do not agree with having a minimum wage others welcome the idea. The National Minimum Wage has advantages and disadvantages. And based on what is written above, the advantages includes it provides equality in gender in terms of payment, especially in low-paying sectors. Another is it reduces the abuse of workers especially with women, youth and the immigrants. And most of all it increases income of low-wage employees. On the other hand, minimum wages have also its disadvantages such as the employers may not afford to hire more employees especially if the minimum wage increases and the products and services will increase. And it will not aid in reducing the rate of poverty in any country.
And based on the literatures gathered having a national minimum wage implemented in the United Kingdom is rather positive than negative. The employment increased and vice versa. Positive reactions were given especially by the workers that benefited directly in the national minimum wage. Although it had no great effect in the wage inequality in a large proportion, it is due to the fact that the minimum wage earners are small in number. It still impacted the low wagers such as the care home workers.
The scope of the National Minimum Wage is broad. One study cannot equate to the efficiency or inefficiency of the Minimum wage. A number of factors must be studied and researched in order to identify and determine the effect of the implementation of the National Minimum wage, in which will have an effect in the long-run. Further research must be done especially in the sector of youth that are below 18 and working part-time, the sector that is mostly unheard. Another area of research in the minimum wage is the immigrant or foreign workers. A number of foreigners in United Kingdom are working in the minimum wage sector. Additional studies must also be made regarding the impact on the inequality of wages in the larger scale. As a whole, having a national minimum wage is more helpful and useful especially those working in low-paying jobs.
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