The National Minimum Wage

On the 1st of April 1999, the National Minimum Wage (NMW) was introduced in the UK at a rate of £3.60 per hour for workers aged 21 and older, and at a rate of £3.00 for workers aged 18-21. Since then, it has grown steadily to reach a rate of £6.31 per hour today. The NMW is “the minimum pay per hour that almost all workers are entitled to by law” (www.gov.uk). In 1999, 1.9 million people were paid less than £3.60, sometimes even below the Living Wage due to the dismantling of unions by the Thatcher government. The idea of a minimum wage then came up, supported by the Labour Party, in order to reduce the increasing poverty and to prevent low wages workers from being exploited by their employers. The Conservative Party, supported by employers, was strongly opposed to this project, arguing that a minimum wage will damage the economy and create poverty due to higher unemployment levels. So, how does the NMW really affect poverty and employment in the UK?

This essay will first analyse the implementation and the evolution of the NMW. It will then examine the different arguments of both advocates and critics of this measure. Finally, it will discuss the relevance of these arguments today and see to what extent the NMW has affected employment levels while being a breakthrough against poverty.

In 1997, after ejecting the Conservative Party at the elections, the Labour government made the introduction of a minimum wage its first priority. As a result of the National Minimum Wage Act of 1998, the Low Pay Commission (LPC) was established. This commission is an independent body composed of 9 Low Pay Commissioners representing the different social partners with people chosen amongst employees, employers or with an academic background. The comm...

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...happened and since 2001, critics of the NMW are progressively changing their mind as the LPC has managed to raise the wage of low paid workers without leading to any substantial reduction in employment. The NMW has also more positive than negative aspects, having reduced poverty and wage inequality with only modest effects on employment and having affected productivity favourably, while only reducing firms’ profitability by a small percentage. In a monopsony, the NMW could even increase employment if a proper wage is implemented. Overall, it can be said that the National Minimum Wage is a major tool to enhance a country’s welfare and boost its economy. Nevertheless, being only established for 15 years, are we able to capture the long run effects of the NMW today; or should we wait another ten years to conclude on the effects of the NMW on employment and poverty ?