National Minimum Wage in the United Kingdom - Essay Example

National Minimum Wage in the United Kingdom National Minimum Wage in the United Kingdom The United Kingdom (UK) has been known tohave a longstanding history of different kinds of interventions by the state in order to ascertain a floor in the labour market (Astle, Laws & Marshall 2009, p. 69). Particularly, there were no instruments instituted in the period between 1993 and 1999 for the protection against exploitation of the most vulnerable workers. In April 2014, the LPC (Low Pay Commission) made recommendations to raise the NMW (National Minimum Wage) and backdated it to 1 October 2013. Initially introduced in 1998, the NMW took effect in 1999 and was an Act intended to make provision in connection with and for a minimum wage. Reviewed every October, the hourly rate of NMW is dependent on one’s age and whether or not they are apprentices. Further, they must be of at least the school-leaving age to be entitled to NMW. Against a backdrop of concerns about job losses if the NMW were set too high, the LPC has remained central in playing the role of ensuring that the NMW is a permanent attribute of the labour market in the UK (Confederation of British Industry 2004, p. 90). To that end, this paper will discuss the extent to which the introduction of the NMW in the UK can be considered a success. The NMW can be considered to be significantly successful. It has ensured the increase of wages for the workers paid the lowest, averted in-work poverty by bringing down tax credit pressure and improved incentives to work (Manning 2012, p. 1). This is by broadly viewing it from the perspective of the LPC’s success in balancing concerns that losses of jobs will result from a high minimum with the desire of benefiting low-paid workers by paying a high minimum. Essentially, most of the success lies in the NMW’s economic and social impacts as well as its successful implementation, albeit receiving media approval from only 10% of the respondents. It has been highly instrumental in the reduction of the pay gap that previously existed between the highly and lowly paid (Her Majesty’s Treasury 2005, p. 108). Despite the fact that the pay of only five percent of the workers was directly raised, the effects of the NMW spilled over and benefited up to 25% of the UK’s workers. Consequently, this makes the NMW the key factor behind half of the drop in wage gap between the average worker and those paid the lowest. Further, contrary to what was initially feared, there has been little evidence relating any job losses to the raised NMW, although this does not imply dismissing the fears in their entirety. Some employers responded to the NMW through adjusting pay structures and costs not related to wages (Colling & Terry 2010, p. 59). For example, unsocial hours and overtime payments were reduced as well as entitlement to annual leave and pensions. Others merged hierarchical and geographic pay zones while others squeezed differentials. However, from the human resource perspective, existing evidence does not point towards the NMW having led to employment cuts to a significant degree (Beardwell & Claydon 2010, p. 104). The reduced hours, further, can neither be directly and significantly linked to lower profits and business closures nor reduced wages. The NMW in the UK favourably compares with minimum wages stipulated in other developed countries (Bank of England 2007, p. 102). Whether the UK NMW is calculated in real spending power terms or as a percentage of the median, it can be seen to have grown during times when it fell in real times or held steady in other countries. In contrast to earlier views, its effects have widely been redistributive, with most of the benefiting households located in the lower third of the distribution of income. Over the past period of six years, which is in contrast to conventional wisdom, it has been shown that inequality in the levels of income has dropped in the UK to levels that were seen last in the 1980s (Bratton et al 2010, p. 89). The sector of residential care is the only one that can be shown to have been impacted negatively in significant measures (Machin & Wilson 2004, p. 109). This is mainly because the clients, rather than suppliers, are the ones who get to fix the prices of services. Ideally, this makes price adjustment by employers to reflect the higher costs of labour rather difficult (Forth & O’Mahony 2003, p. 91). However, this has not presented any contradiction between the growth of NMW and retaining high degrees of the flexibility of the labour market (Coats 2007, p. 6). More than one million low paid workers have acknowledged the benefits of the NMW, which is combined with tax credits and a reduction of child poverty (Finn 2005, p. 48) The hairdressing industry will be used as an example to demonstrate the success of the NMW, in which a research was conducted by the University of Greenwich Business School to determine its impact in the sector in 2010. The results showed that the industry has significantly aligned itself with the NMW and the increases showed less negative impacts than had initially been predicted or felt during implementation (Dickens & Dolton 2011, p. 101). Most of the saloon owners responded with the common move of increasing prices. The strongest impact was felt on the employment opportunities and costs of younger employees, in which there was little evidence of employers restricting jobs to persons between and 17 to avoid the NMW (Metcalf 2010, p. 491). In terms of labour productivity, it was established that it in seven of the low-paying sectors, it had risen in six of them between 2006 and 2012 (Butcher 2012, p. 215). The only exception was the footwear and clothing sector. In fact, the hairdressing sector recorded the highest labour productivity it had posted for a period of three consecutive years. Further, statistical analysis showed no evidence linking the NMW to general increases of unit labour costs throughout the same period even though over half of the firms in the sector complied with the NMW by raising their wages accordingly. It was also shown changes that occurred in the provision of training more associated with the changing circumstances of business rather than directly because of the new NMW. The research also found that the NMW did not impact adversely on the likelihood of subsequent employment of workers in the affected wage group (Butcher 2012, p. 215). An analysis of the general labour market has shown that more than two thirds of the specific beneficiaries of the NMW are women, two thirds of who worked on part time basis (Edwards 2006, p. 36). In this sense, a direct consequence of the NMW was that its initial introduction narrowed the hourly pay gap of women relative to men by a whole percentage point. Since that was also recorded as the highest for close to a decade yet its introduction had only raised the national wage bill by 0.5%, the success of the NMW cannot be overlooked. According to statistics released by the LPC, 49% of the beneficiaries were women who worked part time, 19% females who worked full time, 21% men who worked full time and 12% men who worked part time (Coats 2007, p. 62). In this perspective, the segregating factors between women who work full and part time are education levels and occupation. Generally, the beneficiaries are minority ethnic groups, persons with disabilities, young workers and part time workers typically in the low-paying industries and parts of the country in which low pay has been more prevalent over the years (LPC 2004, p. 83). According to a report released by the LPC, those affected most significantly are workers in elementary occupations (Bryan & Taylor 2008, p. 83). These include porters, waiting staff, cleaners and bar staff, especially in the restaurant and hotel industry in which it affected one out of four employments. Throughout the decade, the impact on employment was not significantly measurable but, especially in the low-paying sectors, it had continued to grow (Brewer 2009, p. 14). The most affected were the small businesses, but they transitioned successfully. Customer service and sales and personal service are the two other occupational categories significantly affected (Manning, A & Machin, S 2008, p. 98). The customer service and sales category includes attendants at petrol stations and check out operators while the personal service category includes hairdressers as earlier discussed, play group assistants, especially those working with children of pre-school age and care assistants (Howarth 2004, p. 115). In conclusion, the NMW has largely been successful through the ways it has impacted wage inequality by acting as a critical safety net for low paid workers (Dickens & Manning 2008, p. 615). It has received widespread political support even though it was at first opposed and is popularly accepted among the public. This is despite the fact that it is directly paid to only a small percentage of the workers, but it has, however, had more persistent impacts on wage inequality than initially expected or at implementation and subsequent years (Brown 2009, p. 430). It has improved pay for workers who would have otherwise received wages below it without affecting the pay of those who would have earned more (Trades Union Congress, 2009, p. 14). Further, no concrete evidence has been provided that links the introduction and eventual upgrading of the NMW to negative repercussion on employment, a fact that ranks it as successful in the policies of the labour market (Milton 2004, p. 24). In general, women and most disadvantaged groups have been shown to be the greatest beneficiaries, with an apparent drop in inequalities of income levels. References Astle, J, Laws, D & Marshall, D 2009, Britain after Blair. a Liberal agenda, Profile Books, London. Bank of England, 2007, Inflation report February 2007, Author, London. Beardwell, J & Claydon, I 2010, Human resource management: a contemporary approach, Prentice Hall, Harlow. Bratton, J, Sawchuk, P, Forshaw, C, Callinan, M & Corbett, M 2010, Work and organizational behaviour, Palgrave, Basingstoke. 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