Adam Smith Institute Budget Reaction: Mandatory Living Wage is a disaster

For further comments or to arrange an interview, contact Head of Communications Kate Andrews: | 07584 778207 Commenting on the Mandatory Living Wage announcement, Deputy Director of the Adam Smith Institute Sam Bowman said:

The new National Living Wage is a disaster that will condemn tens of thousands of people to long-term unemployment. Almost all of the most methodologically-robust academic studies indicate that increases in the minimum wage kill jobs. Low-skilled people, young people and ethnic minorities are the ones who are hit worst.

There is also evidence to suggest that higher minimum wages slow down the creation of new jobs, particularly in sectors that employ large numbers of low-skilled workers. Firms may also respond to this by cutting back on non-monetary worker compensation like break times and sick leave, to offset their increased labour costs.

Britain’s experience with the minimum wage has been benign so far because the Low Pay Commission’s remit has always been to minimise job losses. It has done this admirably, restraining hikes like this. This can no longer be the case.

There is no magic wand we can wave to make workers more productive. Raising the National Insurance threshold for low-income workers would have given them more take-home pay and created jobs. But that would have required spending cuts or tax rises elsewhere, so the Chancellor has taken the politically-easy way out. If the OBR’s estimates are to be believed, today the Chancellor will have put 60,000 people out of work.

Notes to Editors:

For further comments or to arrange an interview, contact Kate Andrews, Head of Communications, at | 07584 778207.

The Adam Smith Institute is a free market, libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.