ReWAGE News Archive

Next year marks a quarter century of successful minimum wage policy in the UK.

Building on the UK’s successful minimum wage policy to date, a new ReWAGE evidence paper: What next for a fair minimum wage? makes eight recommendations for a fair minimum wage, reflecting on how social norms of fairness have changed and whether the minimum wage still measures up to current perceptions of ‘fairness’.

Economic evidence suggests that the minimum wage has supported wage, jobs and productivity growth and contributed to greater labour market efficiency without fuelling high inflation and unemployment. Fixed each year by the independent Low Pay Commission it has been backed consistently since its introduction in 1999 by governments of both main political parties in power and has served as a positive policy role model for other countries.

ReWAGE’s evidence paper identifies four ‘fairness norms’ that shape experiences about a fair minimum wage and sets out recommendations aligned to each for a revised Low Pay Commission remit.

The paper’s author, ReWAGE expert Professor Damian Grimshaw (Professor of Employment Studies at King’s College, London) says:

“Minimum wage policy, like all wage-fixing practices, does not operate in a social vacuum. As well as reflecting the economic price of labour, wages are also a social practice. This means that wages reflect all sorts of different fairness norms.

“In 2024, the minimum wage is expected to reach two thirds of median earnings as planned. This is a significant achievement and represents a major success for pay equity, including for gender pay equity since it is women who account for the majority of minimum wage earners.

“This ReWAGE paper explores how to build on this major public policy achievement and the role of the UK’s minimum wage in promoting a socially just labour market. And how we can leverage widely held norms of fair pay to shape minimum wage policy post-2024.”

Recommendations:

Fairness norm: The minimum wage should keep up with higher earnings:

1. With the aim of sustaining the minimum wage at a value that keeps up with higher earnings, The Low Pay Commission should redefine its target value in line with the OECD’s benchmark wage indicator: 66 percent of full-time employees’ median earnings.

2. The Low Pay Commission should also monitor the minimum wage value against complementary benchmark wage indicators: full-time employees 75th percentile; and full-time 90th percentile.

Fairness norm: The minimum wage should reward valuable work:

3.- Short-term: the Low Pay Commission should establish a set of minimum wage premia for entry-level essential occupations

4.- Medium-term: the Low Pay Commission should support the development of collective bargaining at workplace and/or sector levels for essential occupations and/or expand minimum wage setting to include premiums for skill and/or experience or working conditions (building for example on the highly innovative legislative reforms for new multi-level bargaining currently being implemented in Australia).

Fairness norm: The minimum wage should keep up with the cost of living:

5. The Low Pay Commission should enact quarterly minimum wage adjustment in response to inflation exceeding 2%.

The Low Pay Commission should benchmark the minimum wage against the “Real Living Wage” and seek convergence.

7. The LPC should undertake regular detailed examination of the net income effects of changes to the minimum wage and Universal Credit for workers living in poor households.

Fairness norm: The minimum wage should provide income security:

8. Government should introduce new legislation for a new minimum-hours guarantee with provisions for minimum notice periods for schedule changes.

There are two motivations for making these recommendations now. The first is that the current remit for the Low Pay Commission to raise the minimum wage up to two thirds of median earnings is likely to be met by April 2024, so this is a good point to start debating what the new remit is likely to be.

The second motivation is that there is growing evidence that the minimum wage is not fully reflective of social norms of wage fairness. Because the labour market is as much a social as an economic institution, a revised remit for the Low Pay Commission needs to consider more explicitly the shaping role of fairness norms.

The evidence paper is supported by a short summary document.