The minimum wage has reversed the UK’s trend of rising pay inequality and increased wages for millions of the lowest paid workers by up to £6,000 a year.
The findings were revealed in the report ‘Happy 25th birthday to the minimum wage’ published by the Resolution Foundation.
Research for the report examined how the introduction of a minimum wage in April 1999, under the National Minimum Wage Act 1998, has affected low-paid workers in the UK over the past 25 years.
In light of its findings the foundation dubbed the minimum wage the “single most successful economic policy in a generation”.
It was introduced against a backdrop of rising pay inequality with hourly pay for the highest earners growing twice as fast as it was for the lowest earners (3.1 percent versus 1.4 percent per year) between 1980 and 1998.
But since its introduction in 1999 this trend has reversed. Pay growth for the lowest earners is now five times that seen by the highest earners (1.6 percent versus 0.3 percent per year).
This rapid growth in pay for the lowest earners is equivalent to them taking home £6,000 more a year compared to what they would be earning if their wages had continued to grow in line with typical wages since 1999, the report said.
Big increase in 2024
Increases in the minimum wage, notably with the introduction of the national living wage in 2016, have also helped tackle the UK’s long-standing problem of high levels of low pay, the report said.
With low pay defined as people earning less than two-thirds of median hourly pay, a fifth of workers were trapped in this wage bracket for several decades. But since the introduction of the minimum wage this has fallen from 22 percent in 1999, to 9 percent in 2023.
A rising minimum wage has also meant that many people in lower paying occupations have been able to enjoy real wage rises even amid the wider wage stagnation of the past 15 years. Between 1998 and 2023, median hourly pay rose by 66 percent for bar staff and 52 percent for cleaners in real-terms, compared to just 21 percent for median earners.
The report said that the minimum wage has also “risen rapidly in international terms”. When introduced, it was at a low level compared to the OCED average back in 1999, but by this April the UK will have one of the highest minimum wages in the world relative to typical wages – lower than New Zealand (and some other smaller economies) but roughly level with France and Korea.
On 1 April 2024, the minimum wage is set for a particularly big increase as it rises from £10.42 to £11.44. This is the third-highest annual change in its history – a rise of 7.8 percent in real terms, and 9.8 percent in cash terms.
Election debate
The foundation said that the success of the minimum wage is “in large part due to the careful oversight of the independent, expert-led Low Pay Commission throughout its 25-year history”.
Over that period, the minimum wage has gone from being highly politically contentious to enjoying strong cross-party support. But despite its popularity, and with an election approaching, the foundation said that neither of the main parties have set out a clear path for where the minimum wage should go after 2024.
The foundation added that while there have been significant hourly pay gains for low-paid workers over the past 25 years, other areas of low-paid work – from the security and intensity of jobs, to the enforcement of legal rights and access to decent sick pay and maternity leave – leave plenty of room for improvement.
The foundation acknowledged that many of these areas are beyond the remit of the minimum wage, and need to be at the heart of debates about the future of low pay in Britain that are bound to take place during the election campaign.
Nye Cominetti, principal economist at the Resolution Foundation, said: “The introduction of the minimum wage 25 years ago is the single most successful economic policy in a generation, boosting the wages of millions of Britain’s lowest earners by up to £6,000 a year.
“The policy was introduced in the face of fierce opposition, but now experiences strong cross-party support. With its current remit ending this year, now is the time to discuss the future of the minimum wage and low pay more widely ahead of the election.
“Politicians should reflect on why the minimum wage has been so successful – such as the combination of long-term political direction and independent, expert-led oversight – and whether this approach could be broadened to tackle some of the UK’s other low pay challenges.”
