Aug 8, 2017 by

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WHY 2017 IS NOT 1997
By Ben Southwood and Sam Bowman –
The National Living Wage, announced in the 2015 Autumn Statement and effective from 1 April 2016, effectively takes control of the Minimum Wage out of the hands of the Low Pay Commission and gives it to the government. Whereas the LPC had a mandate to balance both pay and employment concerns, free from political pressure, the issue is now politicised. There are worries that abandoning this framework will threaten employment: the Office for Budget Responsibility projected last year that 60,000 fewer jobs will be created under this regime than the previous status quo. This paper reviews the empirical evidence on the direct and indirect impacts of increases to the Minimum Wage.
1.The National Living Wage must be viewed as an increase to the rate of the National Minimum Wage; functionally it is indistinguishable from a higher NMW rate for over-25s. The large evidence base on the economic impact of the Minimum Wage is therefore relevant to any assessment of the National Living Wage.
The difference is political. The Minimum Wage was, between its introduction in 1997 and 2016, set by the Low Pay Commission, staffed by industry figures and experts, all unelected. It set increases based on economic considerations—balancing out the expected benefit to low-end wages and the risk to jobs—and frequently raised the wage floor as little as 4p, when they believed that’s what conditions demanded. Now, under the National Living Wage framework, the LPC is relegated to sketching out the path of increases, with little say over whether the overall trajectory is a good or bad idea. The issue has become a political football, like monetary policy before Bank of England independence.

Continue: living_wage_paper.pdf

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