Monday, 8 July 2013

What's happened to the real value of the UK minimum wage?

The low Pay Commission, report 2012, figure 2.5 tells us.  it has risen quite a lot 1999-2011, but concentrated in the early years.

Here's what it says:
 2.20 Since its introduction in April 1999, the adult rate of the NMW has increased by 69 per cent from £3.60 an hour to £6.08 an hour in October 2011. Figure 2.5 shows that this is much faster than the growth in average earnings, inflation (whether measured using the Consumer Prices Index (CPI) or the Retail Prices Index (RPI)) or the economy. Between April 1999 and October 2011, average earnings including bonuses (measured using a combination of the Average Earnings Index (AEI) and AWE) grew by around 55 per cent, RPI inflation rose by 44 per cent and CPI inflation by 31 per cent.

2.21 Had the initial adult rate of the minimum wage been uprated in line with average earnings growth, it would only have been £5.60 an hour by October 2011, 48 pence below its current level. If instead, it had been increased in line with price inflation, it would have been £4.71 using consumer prices and £5.19 using retail prices. These are respectively £1.37 and 89 pence less than the current adult rate of the minimum wage. It is evident, therefore, that the adult rate of the minimum wage has increased its relative value (compared with average earnings) as well as its real value (compared with price inflation) since its introduction. In contrast, nominal gross domestic product (GDP) grew by 67 per cent between the first quarter of 1999 and the third quarter of 2011, roughly in line with the increase in the minimum wage.
 2.22 However, most of the real and relative increases in the minimum wage occurred as a result of the comparatively large upratings from October 2001-October 2006. Since that time, the adult rate of the minimum wage has risen more or less in line with average earnings but has lagged price increases. The minimum wage increased by 13.6 per cent between October 2006 and October 2011. This compares with increases of 13.2 per cent in average earnings and higher rises of 17.2 per cent in CPI and 18.8 per cent in RPI.

It is curious to me at least, that in the productivity debate, the story is that falling real wages  have helped employment.  But in the min wage debate, rising real wages have apparently not hurt employment.   This seems a puzzle.