Wealthy Nations Daily Update - UK Minimum Wage

On Friday, at least 1.8 million low paid workers in the UK got a pay rise due to the Chancellor George Osborne's national living wage coming into effect. Announced in the budget last year, the new minimum wage will pay at least £7.20 an hour, rising to about £9 an hour in 2020 for those aged 25 and over. In a recent speech Nick Boles, the UK's skill minister, claimed the increase will be "one of the biggest increases in the legal minimum wage that any government has done in the western world in living memory" adding that he felt like he had "died and gone to heaven". One could say he was happy about it.

Of course the biggest reason Osborne wants to continue to raise the living wage is to make business pay more for labour, and so reducing the welfare bill. The more families earn the less they can claim in benefits. In-work tax credits account for 14% of welfare spending in the UK, and some argue allows employers to pay low wages, knowing that policies like tax credits will help families cover any shortfall. It's no surprise that not all in the business community agree with the new living wage. One of the loudest dissenters is the retail sector, who critics say have always relied on benefits to 'subsidise' low wages. According to the charity Citizens UK, the UK taxpayer subsidises the retail sector to the tune of £11bn a year. However, in a paper issued by The Centre for Retail Research, it claimed the introduction of the living wage will cost retailers £3.26bn per year in extra pay, national insurance and pensions. In addition it will increase inflation by 1.1% per year to 2020, cut jobs and hours in the sector by 42,000 full-time equivalent and lead to a further 6,274 stores closing in the period 2016-2020.

After introducing a minimum wage in 1998, other governments around the world are taking ever greater interest in the effects, especially now the UK's low paid will see earnings raise 4x faster than average earnings last year. As an indirect result Germany introduced a minimum wage last year. Despite concerns the unemployment has continued to fall and is still at record lows.

Interestingly the Financial Times has produced a "Big Mac" minimum wage index, which works out the number of minutes needed to work to be able to pay for a Big Mac. At the previous minimum wage of £6.70, a worker in the UK would need to work for 26 minutes to buy a Big Mac, and just 18 minutes at 2020 target of £9 an hour. 26 minutes is similar to France and Germany, and much better than the US (41 minutes) or Spain (48 minutes). If you are a lover of Big Macs you need to head towards Denmark, where you only have to work for 16 minutes to afford one. Best avoid Mexico, where over 4 and a half hours of work are needed to buy your favourite fast food.

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