Any National Minimum Wage Should Be Set No Higher Than L3.50 Says IPD Report

Management Services, October 1996 | Go to article overview

Any National Minimum Wage Should Be Set No Higher Than L3.50 Says IPD Report


If the Labour Party wins the next election and decides to introduce a national minimum wage (NMW) on political grounds the rate should be set well below the L4.25 suggested by some trade unions, says the Institute of Personnel and Development (IPD), or jobs could be put at risk. An independent report published recently on the likely impact of a NMW by John Philpott of the Employment Policy Institute for the IPD similarly concludes that a `cautious policy maker would seek to set the initial level of NMW at between L3 and L3.50 an hour and then review the effects over time.' The IPD states that while it would prefer to see a minimum of prescription in the labour market, if a NMW becomes a reality, Philpott's figures bear further examination.

Philpott's report argues that while the economic effects of a NMW cannot be predicted with any accuracy, 'a modest minimum wage of up to L3.50 would in all probability add less than 1 percent to total economy-wide wage costs - even accounting for knock-on effects on better paid workers - and threaten few if any jobs.'

Nevertheless, the report says that the shock effect of introducing a NMW remains uncertain. Even if a NMW is set at a low level, sectors with high concentrations of low paid workers will face adjustment problems, such as the distribution, hotels and catering sector where in 1995, 15 percent of employees were paid below L3 per hour and almost half were paid less than L4.00* (*TUC figures based on the British Household Panel Survey). The report also states that it is difficult to judge the precise impact of a NMW on sectors exposed to international competition, like clothing which would feel the 'bite' of even a relatively low NMW at L3.00.

Low-paying employers in labour-intensive sectors who are unable to absorb higher wage costs by improving efficiency would either have to cut jobs or accept reduced profit margins. …

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