We need to talk about what policy can do to ensure a decent wage for the low paid


How do we lessen the plight of the low paid and ensure that workers are rewarded a decent wage for their work? Is it enough for policy to focus solely on increasing the minimum wage?

 This Blog looks at recent UK policy which has sought to tackle low pay and suggests that if the Government is really serious about “ending” low pay it needs to move beyond its recent sole focus on raising the wage floor and utilise a range of policy levers. Key among these is the need for workers to have the right to have their wages negotiated for collectively by a trade union.


The National Living Wage aka the national minimum wage

In recent decades when seeking to tackle the problem of low pay, UK governmental policy has tended to focus almost explicitly on increasing the legal wage floor through the national statutory minimum wage. The most recent step in this regard was the introduction of what was termed the ‘National Living Wage’.

The national living wage was announced in the 2015 Summer Budget and introduced in April 2016 as the new statutory minimum hourly wage rate for workers over the age of 25. When implemented the Government set a starting wage of £7.20 per hour, which increased the national minimum wage for those aged 25 or over from £6.70 or by 50p per hour in that first year. This represented a 7.5 per cent nominal increase in hourly pay for this age group, the largest since 2004. At this time the Government also committed to the objective of the National Living Wage reaching 60 per cent of a typical (over-25) workers hourly wage by 2020.

Until this point the national minimum wage was set at a rate identified by a panel of independent experts who sat on the Low Pay Commission. To identify what the national minimum wage should be the Low Pay Commission were tasked with carrying out an annual consultation to identify a level which would prevent extreme exploitation of workers, but at a rate that the market could bear. In this respect, the national minimum wage was designed only to be a legal wage ‘floor’, rather than be set at a level that prevented low pay or provided a decent and fair wage for workers.

Thus, whilst the setting of a legal wage floor or a national minimum wage was introduced in 1999, this introduction of the national living wage represented a significant shift in policy in terms of how the legal wage floor was defined, how it was implemented and ultimately what its aim was. 

The most notable aspect of this shift was the fact that the setting of the national minimum wage was changed from being a very successful example of de-politicised evidence-based policy-making to a politicised policy. In this regard, there was no basis for the identification of the new rate as £7.20. There was no basis for the identification of the target for the wage floor to reach 60% of median earnings by 2020. What is more, the introduction of the national living wage policy was stylised more as a tool to tackle the problem of low pay, than as a tool to prevent the extreme exploitation of workers. Indeed, in terms of tackling the problem of low pay the national living wage was the only policy that the Government utilised.

And whilst any increase in wages for the lowest paid in our society is to be welcomed this politicising of the national minimum wage really undermines the successful role that the Low Pay Commission has been playing for almost 20 years in setting the wage floor. It’s no surprise then that when the Government announced the national living wage policy, many of the stakeholders expressed caution. They wondered what would happen if the Low Pay Commission recommended an increase that would slow or derail progress towards the Governments 60% target? Would the Government overrule them, or heed their advice? Or indeed would the Low Pay Commission feel so compromised in their ability to make an independent recommendation that they would ‘stick to’ the political mandate for the national minimum wage that had been set out?


The Chancellors bid to “end” low pay

As we approach 2020, and as the Government looks like it will be successful in their ambition to have the national minimum wage reach 60% of median earnings it is time to firstly congratulate Government in achieving their objective. It is also time however to renew efforts to convince Government that it is not enough to tackle the problem of low pay solely through wage floors and the need to utilise a range of policy levers. 

This is particularly important given that we’re beginning to see the foundations of what the current Conservative Government is planning in policy terms to tackle low pay. Worryingly, it looks as though they plan to continue with their focus on the wage floor. In this regard, we have recently heard Chancellor Phil Hammond say that he wants to “end” low pay 2025. To achieve this, he has stated that the aim is to have the national living wage reach 66% of median earnings by 2025.

The claim from the Chancellor that he will “end” low pay through doing this is probably a mystery to most, as they ponder why he thinks that having the national living wage reach this arbitrary line will solve the problem of low pay. And whilst this identification of low pay as being below 66% of earnings is an arbitrary line, the Chancellor is using it with some merit as it is one of the most commonly utilised measures of low pay. It is utilised by many international organisations such as Eurostat and the OECD to measure, track and compare low pay across countries.

Still, however, the question needs to be asked – if the Chancellor is successful in reaching the target of having the national living wage reach 66% of median hourly earnings will he have ended low pay? Of course not.

Firstly, I take issue with how the Government has taken it upon itself, without consultation, to decide what low pay means - and that it means having hourly earnings below 66% of the median. Why has it not chosen the Real Living Wage as the threshold? The Real Living Wage arguably is a much more accurate means by which we can identify the threshold below which we might consider one to be low paid. It is calculated by the Living Wage Foundation based on the cost of a basket of goods and services considered by the public as necessary to obtain a minimum acceptable standard of living.

Secondly, I do not think that the Government will be successful in its aim of ending low pay purely by having the hourly wage rate reach 66% of median earnings not least because low pay is about much more than the hourly wage rate. In this respect, you can have a very high hourly wage rate but still be low paid, if you only work a small number of hours. And this is a very real thing for many of our low paid workers. Low paid workers face a higher likelihood of being employed on a zero, uncertain or low hour contract. Consequently, we need to consider much more thoroughly how pay interacts with other aspects of the labour market to fully capture and appreciate what needs to be low paid and in turn what it takes to end low pay. So, while statutory minimum wage rates are vital for regulating the bottom of the labour market, they do not by themselves get rid of low pay.


The Right to Collective Bargaining

To seriously tackle the problem of low pay we need to utilise a suite of policy and legislative levers. Key among these is the need for workers to have the right to have their wages negotiated for collectively by a trade union. Indeed, the lack of collective bargaining rights for workers has led to a power imbalance between workers and employers, which cannot be corrected by a broad sweep increase of the legal wage floor alone. In its bid to end low pay it is incumbent on the Government to initiate a social dialogue between themselves, trade unions and businesses and for wages to be negotiated on a sector-by-sector basis.

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Dr Lisa Wilson

Lisa Wilson is a Senior Economist at the Nevin Economic Research Institute and is based in the Belfast office. Her main research interests lie in the areas of labour markets, income distribution, poverty, public expenditure, living standards and well-being. 

Since taking up her position in the NERI Lisa has been among other things carrying out work concerned with job quality and its economic and social importance, the future of work, the gendered nature of employment, and housing and its impact for living standards in Northern Ireland.

Lisa is a native of Donegal, and a graduate of Ulster University and Queens University, Belfast. Lisa completed her PhD in Queen’s University, Belfast focusing on income inequality and well-being.

Contact: [email protected] or 00 44 28 9024 6214.