The effect of minimum wage on unemployment in the UK
Extract
1 : History
of the National Minimum Wage
Extract 2 : Labour
Market Impact
Extract 3 : Literature
Survey
Extract 4 : Survey
Extract 5 : Results
and Analysis
Abstract:
The paper tries to find out the effect of the introduction of National Minimum Wage on the Unemployment .The Research Does not focus on the effect on the individual sectors or on the social classifications. We try to provide a boarder picture on the issue and use data analysis to find out the effect of National Minimum wage on the unemployment in the UK. Our study has found that there is no negative effect f the National Minimum Wage on the unemployment in the UK.
Introduction:
In the mid-1990s, the Labour Party in the United Kingdom made it clear that they would introduce a National minimum wage if they won the next election. Their objective was to use andNational Minimum Wage to help reduce poverty and income inequality. This led to much political and economic debate about the likely impact of a National Minimum Wage. Much of this focused on the employment in the UK. For example, in 1995 a former Conservative government minister, Iain Lang, said that a minimum wage set at £4.15 an hour would cost at least 950,000 jobs. Yet by March 2001, nearly two years after the introduction of an 'National Minimum Wage ' (in April 1999), the Low Pay Commission was able to conclude: "We were especially concerned about the possible negative employment effects of the minimum wage. Employment has continued to grow strongly since the introduction of the minimum wage, and there were no discernible adverse effects at the aggregate level." In fact, total employment increased significantly during the first two years after the introduction of the 'National Minimum Wage ' 1
Brief history of the National Minimum Wage
Winston Churchill first established wage Councils in 1909
to protect the pay of workers in the so-called "sweated industries".
At their peak in the 1960s, the Wage Councils set minimum wages in some 60 sectors.
After this, the number of sectors covered fell and in the early 1990s there were
26 remaining Wage Councils.
But in 1993, the Trade Union Reform and
Employment Rights Bill abolished all of these. Thus, from 1993 there were no minimum
wages in operation in the United Kingdom, except in agriculture. In 1997, the
Low Pay Commission (LPC) was established to recommend to the Government a level
for the initial rate of the National Minimum Wage. The LPC did a lot of research
and spent a lot of time talking to trade unions and employers before making recommendations
to the Government. At the start, there were large differences of opinion about
the introduction of the National Minimum Wage and about what level it should be.
In fact, up until the mid-1980s, the Trades Union Congress (TUC) had been
against a minimum wage because they felt it might damage collective bargaining.
But they changed their mind and in the mid-1990s were arguing for a National Minimum
Wage of over £5. The head of the LPC, George Bain, points out that employers
also changed their minds about the National Minimum Wage. In 1995, the Confederation
of British Industry (CBI) argued "even a low minimum wage would reduce job
opportunities and create major problems for wages structures in a wide range of
companies". 2
But by 1997, Bain says,
the CBI had accepted the idea of a National Minimum Wage and was concerned only
about the level of the wage floor.
It would seem the LPC was pretty successful
in bringing employers and unions closer together, demonstrating that social dialogue
does work. In its initial decision, the LPC recommended a fairly modest 'National
Minimum Wage '. It suggested a rate of £3.60 with a lower development rate
for workers aged 18-20 and for those aged 21 and over but starting a new job or
undertaking training.
It also suggested that the National Minimum Wage should
not cover workers under 18 and apprentices. In April 1999, the Labour Government
led by Tony Blair implemented most of the LPC's suggestions, but decided to introduce
an even lower rate for young people. They decided on andNational Minimum Wage
of £3.60 an hour for workers aged 22 and over, with a lower rate of £3.00
for those aged 18-21. Since that time, there have been some slight increases in
the National Minimum Wage and in October 2001, the main national wage for adults
aged 21 and over was adjusted to £4.10 per hour.
The LPC and the Government
deliberately adopted a careful approach. As Bain said: "We believe that by
taking a cautious approach, the National Minimum Wage can be introduced without
significant extra cost to business. Somewhat disillusioned with their Labour Government.
Nevertheless, after decades of Conservative attacks, this was seen as a small
step towards providing muchneeded protection for the low-paid.
- Inland Revenue Record 2002 as stated in the Inland Revenue Website [^ Return]
- Inland Revenue Record 2002[^ Return]
Bibliography
International Labour Organization Survey Reports 1987:2002
The Report from the Inland Revenues 1999:2002
The National Commission for the Minimum Wage Reports 1999:2002.
Research Methodology: Greene & Taal
OCED Reports on United Kingdom: 1990:2002
Extract
1 : History
of the National Minimum Wage
Extract 2 : Labour
Market Impact
Extract 3 : Literature
Survey
Extract 4 : Survey
Extract 5 : Results
and Analysis
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