National Living Wage

08 Apr 2016

Last Friday the National Living Wage was introduced at a rate of £7.20 per hour for over 25’s (up from £6.70) and £6.70 for those aged 21 – 24 (no change). The government intends to raise it to £9 per hour for over 25’s by April 2020.

We’ve  heard arguments about the positive and negative effects, the social imperative to do something about low pay and the pull factor for migrants but if you want a preview of what might happen to jobs, the city of Seattle in the USA is ahead of us.

In June 2014, Seattle passed Ordnance no.124490 requiring an increase in Washington State’s minimum wage within the city. The Ordnance requires an increase in the minimum wage from $9.32 per hour (approximately £6.60 at today’s rate) to $15 per hour (approximately £10.62) phased over 3 – 6 years depending on the size of the business and other elements of employees’ remuneration. The first stage of the increase (to $11) took effect on 1 April 2015.

Professor Mark Perry (Scholar at the American Enterprise Institute and Professor of Economics and Finance at the University of Michigan) has analysed data produced by the US government’s Bureau of Labor Statistics about employment patterns in Seattle. This indicates a decline of 8,114 jobs on a seasonally adjusted basis in the nine months April – December 2015. There was a broadly matching rise in the unemployment rate and both  measures reversed trends of the previous five years.  Professor Perry warns:

“Maybe the city of Seattle will recover from the serious job market weaknesses that it has experienced since last April when its minimum wage law began imposing significantly higher labor costs on the city’s employers.  Considering that Seattle had the largest three-month loss of jobs in city history between September and November last year following the first phase of wage hikes on the way to $15 an hour, it might be the case that the early evidence suggests that this is a radical model for the rest of the nation to NOT follow.”

The AEI is said by some to be biased in favour of business so perhaps this analysis should be treated with care. I do hope the professor is proved wrong but someone please remind me to revisit this post in a year’s time.