UK marks 15 years of minimum wage

Yesterday, the UK marked 15 years of its national minimum wage, a policy that has not only won over all doubters across the political spectrum in this country but was also voted by experts as the most successful policy in the last thirty years.

From The Financial Times (do check out the Resolution Foundation report as well):

Happy birthday, national minimum wage

By John McDermott

A few months into Tony Blair’s government, The Economist argued that “coming up with a minimum wage that will not seriously harm the economy, and destroy jobs, will require the wisdom of Solomon – or extraordinary luck”. Today the National Minimum Wage Act is 15 years old. There are many cases of bad policy making but this is a case of the good kind.

The minimum wage has been a success: all but ending exploitatively low pay while having a minimal impact on overall employment, according to research. A poll of political scientists by the Institute for Government found it to be the most admired policy of the past 30 years. The Economist was wrong. Why it worked carries lessons for today, on both sides of the Atlantic.

For more on the economics, check out the Resolution Foundation’s excellent report. What I find equally interesting is the story of how the idea of a minimum wage went from politically suicidal in the 1990s to an accepted part of British life.

In the 1992 general election, Labour ran on a minimum wage – and was battered by the Conservative government, which said that it would cost up to 2m jobs. (It wasn’t until Michael Portillo became shadow chancellor in 2000 that the Tories changed their position.) In 1995 the Confederation of British Industry said a minimum wage would have “major problems” for wage structures. Two years later, it was in favour. And these days most employers when surveyed say they support the policy.

What happened? The Institute for Government has a case study from which two aspects stand out.

First, supporters of the NMW spent time and effort winning the argument. In part, this was about waiting for the embers of 1980s industrial relations to cool. But it also involved a mixture of high-minded research and low politics. The reality of low pay and the myths of the worst employment effects were exposed, and (a decade before bank bashing became a national blood sport) the Labour party went after the “fat cats” in businesses such as utilities to increase public support for a minimum wage.

Second, the Low Pay Commission, the statutory body charged with setting the minimum wage rates, has been a great success. That Britain has no German-style economic institutions is an oft-repeated complaint. But the LPC has representatives from unions and business, as well as academic experts. Its mandate is simple and flexible. Much of the preparation for this was done before Labour took power in 1997.

The LPC also did the hard work: commissioning pages of analysis and visiting hundreds of businesses across the country. Political interference was minimal and the chairman demanded unanimity on decisions. The LPC has been sensitive to the broader UK economy, limiting NMW rises when the financial crisis hit.

The economy has changed since the mid-1990s. Yet there are still insights to be gleaned from the tale of the NMW. In the US, the botched McDonald’s effort to estimate a budget for employees has been criticised by people who can do mathematics. But by highlighting ignorance of the reality of low pay, it is also a reminder that the argument for a higher federal minimum wage has not been won by its supporters.

In Britain there is a lot of wonkish talk on both side of the political divide about “institutions”. This reflects academy vogue and the fact that there is not a lot of money and public support for more state spending. In his new book, Anthony Painter, the centre-left author, argues that the Labour party must dedicate itself to building “sustainable” institutions. It is an idea that is familiar to Conservative fans of Edmund Burke.

The minimum wage is a sign that lasting popular institutions can still be built. But it also shows that this can take consent, evidence, time and an awful lot of effort.

Happy birthday, NMW.