This morning the Office for National Statistics released new data on wages, that presents some really good news from the last year. With the introduction of the new higher minimum wage (sometimes called the National Living Wage) people at the bottom have seen a big real pay rise, and the gap between those at the top and bottom has narrowed.
The poorest 5% have seen their earnings rise by 6.2%; the biggest increase since this data began being published in 1997. Across the income spectrum pay has been rising, but with the bottom half seeing the largest rises (average pay has risen 2.2%). Overall there are big reductions in pay inequality, as the bottom benefit from the new raised minimum wage.
This data presents a clear message, when governments try to tackle inequality, they can succeed. Inequality is not inevitable, and this represents a good start at tackling it. Alongside positive employment data, these pay increases show that a higher minimum wage can play a strong role in reducing inequality.
Looking a bit more closely at the detail also provides a good new story on exactly who is benefiting from this higher minimum wage. Women’s wages have risen, and people working part time have seen strong wage growth. Even young people under 25, who are below the cut off age for the new minimum wage, have seen their wages rise alongside everyone else. Young people in this age group (aged 16-24) are more likely to be paid the new higher minimum wage, along with other age groups, than they are to be on their lower mandatory minimums.
However, looking into the future, this success brings some challenges with it. As the minimum wage rises, a greater proportion of workers are being paid the same rate. The danger is that for an increasing proportion of the work force the minimum wage becomes simply the going rate, with little chance for ever leaving it. A higher minimum wage can mean lower pay differences between the bottom job and the next job up, reducing the chance of people progressing. This is especially the case with those who will be affected by the move to Universal Credit, the new form of social security. Someone on Universal Credit looking to progress up from the minimum wage could see themselves losing 76p of every £1 pay increase they get. Unless the Government goes back to the original plan for Universal Credit, and lowers the withdrawal rate, then low paid workers will benefit less from increases in the minimum wage and from any raise they get on top of that.
The other note of caution to sound about these figures is that they don’t include the self-employed. Many of the self-employed are on shockingly low incomes, and won’t benefit from raising the minimum wage. They will also be hit hard by Universal Credit’s Minimum Income Floor, which assumes they are earning the equivalent of full time on the new minimum wage, even if they are actually on far less. This group also needs additional support.
The final problem is that whilst the gender pay gap has narrowed it still remains as a persistent injustice. We need to end this blatant discrimination where women are paid 18% less than men per hour. What message does that give about how society values women and what example does that set for girls and young women?
The Government needs to put together a more comprehensive strategy to reduce inequality. Positive words about employees on boards and publishing pay ratios are a good start, but they need to be fleshed out and added to. Today’s data shows that when government puts its words into action, it really can reduce inequality. Now it needs to go further and make the wide ranging reforms needed for the UK to become a more equal country.
Tim Stacey, Senior Policy and Research Advisor