Another argument made in favour of the minimum wage is that an increasing proportion of workers in the UK are paid what is regarded as ‘low pay’. The most frequently adopted measures of ‘low pay’ are either two-thirds of average wages or two-thirds of median earnings. In 1995, 19.6% of the UK workforce consisted of low-paid workers. There is evidence that as late as 1996, 16.3% of the labour force was paid below 4.00 per hour – this is 3 million workers, of whom 2.1 million were part timers. This brings us to another point: the introduction of the minimum wage was justified on the grounds that it greatly helped part time workers and women. Although it may be argued that one person may hold multiple part time jobs, it is also crucial to note that at least in the UK, part-timers have traditionally been paid less than full time workers. In 1995, part-time median pay was 54.2% of full-time median pay. Aside from Canada and the US, this was the highest rate of low-pay amongst all the UK’s competitor countries. Therefore, the NMW was justified in bringing British pay in line with that of other comparable nations and protecting part time workers from unfair exploitation in the labour market (and hence also reducing the threat of unfair competition through the use of very low-paid workers).
The implementation of a minimum wage is generally thought to increase productivity; however, this may not necessarily be true: if other work practices had been beneficial, surely they would have already been implemented? On the other hand, increased wages may well result in increased work effort on the part of the employee; thus it is true that in the long run a minimum wage will shift labour to more efficient operations.
A fourth point to note is that some form of regulation was crucial in the UK to prevent ‘sweating’ (whereby workers are paid below subsistence levels) and other forms of worker exploitation. Although it may be argued that workers were left open to such exploitation only when Wages Councils were abolished by the Major government in 1993, the truth is that Wages Councils were never as effective as they should have been anyway. Besides consistently setting too low rates of pay, Wages Councils were not universal in impact, setting minimum rates only for specific industries where low pay dominated and leaving out industries where some form of collective bargaining, however ineffective, existed. This did nothing for low-paid workers and firms that could not participate in collective bargaining due to poor bargaining structures in the excluded industries; it also excluded smaller industries where low pay was known to exist. In addition, union collective bargaining was often ineffective and by the 1980s it was evident that collective bargaining alone could not resolve the problem of low pay. Coupled with this was the policy of labour market deregulation pursued by the Conservative governments throughout the 80s and early 90s. The repeal of the Fair Wages Resolution, the introduction of compulsory competitive tendering in the public sector and the legislation introduced against trade unions all contributed towards swinging the power balance in the employment relationship dramatically towards the employer. Thus to a great extent during the tenure of Wages Councils, but even more so after their abolition, workers had with very little to protect them from employer exploitation. Hence a further argument in favour of the introduction of the NMW is that it provides a formal framework covering all workers in all sectors of the economy rather than providing partial coverage for some workers in specific sectors.
Another reason for the introduction of the NMW is to protect young workers. Young people traditionally face higher rates of unemployment than other age groups. Youth unemployment has a greater ‘scarring’ effect than unemployment at other ages; it can permanently prevent young people from entering the labour market in the future. The Conservative governments of the 80s and 90s removed young people from the scope of Wages Councils, paid an allowance to people on the Youth Training Scheme well below the previous rate set by collective agreements and introduced the Young Workers Scheme which provided a subsidy to employers who took on young people provided they paid them a wage below a fixed amount. Although these policies may have created a source of low-wage competition in the labour market, they also exploited young people’s labour and willingness to work and this is not fair by any standard. The NMW introduced an initial rate of 3.00 (rising to 3.20 in June 2000) for workers aged 18 – 21; more recently, in October 2004, the government set a rate of 3.00 for 16 – 17 year olds. Thus further justification for the NMW is to protect young workers from exploitation and ensure they are not deterred from entering the labour market later on in life by a bad early experience.
During the 1990s, the cost to the Exchequer of means-tested, in-work income support was rapidly increasing. Due to falling relative wages for the bottom decile of workers, more workers became eligible for government awards and this led to a significant rise in government expenditure on benefits. The government may have felt that setting a minimum wage would shift the burden of maintaining minimum income levels off itself (albeit onto employers’ pay bill). The NMW thus underpinned the benefits system by setting a minimum level of income; this, in turn, led to increased tax revenue for the government. Another reason for implementing a minimum wage is that it reduces the burden of unemployment benefit on the government. Assuming marginal tax rates for low-paid workers aren’t too high, a higher guaranteed minimum level of pay would create incentives for workers to join the labour force, resulting in less people claiming unemployment benefits. In addition, more workers would offer their labour and thus the cost of recruitment, especially for high labour turnover low-paying jobs, would decrease. Thus further justification for the NMW is the reduction of the financial burden on the government through increased participation in the labour market, increased tax revenues and less expenditure on in-work benefits.
Thus the NMW was justified on a number of points, ranging from the protection of low paid workers to reducing income inequality to increasing work incentives in the economy. Given the numerous benefits arising from the NMW’s introduction and the fact that thus far there have not been any significant knock-on effects on pay differentials or employment, one may conclude that the introduction of the National Minimum Wage was entirely justified.
