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National Minimum Wage

Country of implementation
United Kingdom
General short description of the innovation
In 1998 the National Minimum Wage Act created the legislative basis for a statutory minimum wage across the UK. Prior to this no national minimum wage existed. The NMW came into force in April 1999 and was based on the recommendations of the Low Pay Commission.
Target group
Total Population
Policy Field
  • employment
  • wage
Type of Policy
  • public
Duration of the policy
since 1999
Scope of innovation
  • Scope: structural
  • Spatial coverage: national
General description of (intended) objectives and strategies
The NMW is an instrument to eliminate low pay and devising new policy interventions that might, alongside the NMW, enhance the effectiveness of current policies. It is important to note that the NMW does not represent a ?living wage?, eliminating the problem of poverty pay.
Type of innovation
  • new policy, practice or measure
New outputs
  • regulations of the labour market
  • wages (national minimum)
Clarification of intended mechanisms, outputs and outcomes (optional)
The Low Pay Commission fixed the NMW at its start with an adult hourly rate of GBP 3.60 and a rate for those aged 18-21 of GBP 3.00. Since then, there were some changes and nowadays there is an adult rate, a development rate for those aged 18-20 years as well as a rate for those aged 16 to 17 and minimum wage for apprentices. Currently, the adult rate is at 6.31, the development rate is set at 5.03, the rate for under 18 years olds is 3.72 and apprentices are granted a minimum of 2.68. In October 2014, the adult rate was announced to rise by 3% to 6.50 an hour. The other rates would rise by 2%.
Intended target group
employees
Working age population
  • income level (low/medium/high) (especially those on very low hourly wages)
  • main source of income: paid work
Actors involved in policy-making/implementation and/or evaluation
  • agency or national social insurance body (Low Pay Commission)
  • central state
Intended output
  • regulation of the labour market
  • wages
Clarification of outcomes in terms of impacting resilience and labour market inclusion
Early research (Stewart 2003 and 2004) estimated no significant adverse employment effects on low-wage workers of the introduction of the NMW in 1999 and of the subsequent up-ratings in 2000 and 2001. Women, especially those working part-time, were the main beneficiaries of the NMW. Dickens and Manning (2006) showed that wage inequality has fallen since 1998. This is confirmed by other research (Fitzner 2006, Lam et al 2006). Dickens and Manning also stated (2004a, b) that the introduction and early up-ratings of the NMW had a modest effect on wage inequality, but after 2002 the effect became more pronounced. Other evidence suggests that the NMW affected low paying sectors more than other sectors (Metcalf 2007). More recent research (Bryan et al. 2012) also found little evidence that the NMW up-ratings affected employment retention in either the pre-recessionary period or during the (post-)recession. However, there was some evidence that the NMW up-ratings had an impact on hours, notably among the youth group, for whom it was found that the NMW up-ratings reduced basic weekly hours by around 3-4 hours. Yet, there is little evidence that this impact was greater during the recession than in the pre-recessionary period. / / Business secretary Vince Cable said 1 million people would see their annual pay increase by as much as 355 in the first real-terms cash rise since 2008 (Mason 2014). / / Sources: / Bryan, M. et al. (2012). The Impact of the National Minimum Wage on Earnings, Employment and Hours through the Recession, Report to the Low Pay Commission, Institute for Social and Economic Research, University of Essex. / Coats, D. (2007). The National Minimum Wage. Retrospect and Prospect, Work Foundation, London. / Dickens, R. and Manning, A. (2006). The National Minimum Wage and age inequality: an update, Paper to WPEG 12 October. / Dickens R. and A. Manning, (2004). Has the national minimum wage reduced UK wage inequality?, Journal Of The Royal Statistical Society Series A, Royal Statistical Society, vol. 167(4), 613-626. / Fitzner, G. (2006). How Have Employees Fared? Recent UK Trends, Employment Relations Research Series 56, DTI, March / Lam, M. et al. (2006). Do company wage policies persist in the face of minimum wages?, Labour Market Trends, March, 69-82. / Mason, R. (2014). National minimum wage to rise to 6.50, The Guardian, 12 Wednesday. / Metcalf, D. (2007). Why has the British National Minimum Wage had little or no impact on Employent?, DEP Discussion Paper no. 781, Centre or Economic Performance, London. / Stewart, M. B. (2003). The employment effect of the National Minimum Wage, Warwick. / Stewart, M B. (2004). The impact of the introduction of the UK minimum wage on the employment probabilities of low wage workers, Journal of the European Economic Association, 2, 67-97.
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