UK minimum wage increase helps narrow inequality but not productivity

The UK’s fast-rising minimum wage has helped narrow inequality, but has done nothing to lift the country’s persistently low productivity, according to an independent review of the policy.

Under a policy set out by Conservative Prime Minister George Osborne, the UK’s minimum wage doubled the average hourly wage between 2015 and 2020, increasing wages directly or indirectly for more than one one-third of the workforce and deliver high wages before inflation.

This has increased average weekly wages without any significant impact on employment or paid opportunities, the independent Low Wage Commission said in a report released Wednesday. workers. However, the increase in income did not lead to any increase in the household income of low-wage workers, because it was accompanied by a freeze in benefits, and they gradually decreased as income increased. increase.

Bryan Sanderson, president of the LPC, said the review’s findings were “a timely reminder of the policy’s achievements, as well as its limitations”, given the “difficulty facing businesses” The face of today’s jobs and workers is greater than at any time since the introduction of national life wages”.

UK Prime Minister Rishi Sunak has singled out the latest minimum wage increase – the main wage rose 6.6 per cent to £9.50 in April – as one of the key steps the government has taken to ease hardship. due to high inflation. . Low-wage workers have also been given the decision to slow down the withdrawal of workplace benefits as their earnings rise.

But minimum wage workers still have their real wages cut. Inflation in April beaten 9%, the highest level in more than 40 years, according to data released Wednesday. The poorest households, who spend a larger proportion of their budgets on food and energy, are experiencing double-digit inflation, according to an analysis by the Institute for Fiscal Studies.

Meanwhile, Sunak has so far resisted calls for more benefits compared with the 3.1% increase it launched in April, arguing that the government’s IT system is difficult to use making implementation too difficult. difficult with fast speed.

The LPC assessment shows that higher minimum wages have helped close gender and ethnic pay gaps and reduce inequality across regions. But the policy appears to have failed at one of the goals originally set by ministers – encouraging employers to switch to a higher productivity model.

The LPC said its analysis did not show a positive effect on productivity in industries and regions where low wages are most common. This is because raising productivity requires expensive investments – and smaller employers often say they have to cut investments to afford higher wages. A sizable minority have asked employees to work faster, assign them more tasks or limit absenteeism, but this increased work load does not equate to higher productivity.

The LPC’s findings contrast with the government’s opinion that post-Brexit labor shortages – which have prompted rapid wage increases for employers in sectors such as hospitality and food processing – will push accelerate the transition to a “high-skill, high-productivity economy”.

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