New report calls for return to Minimum Wage set by independent Low Pay Commission

  • National Living Wage (NLW) a political football that must be scrapped
  • Long term studies show higher minimum wage risks increased unemployment and slower job creation
  • Artificially high labour prices accelerate job automation and raise consumer prices
  • Living Wage makes pay the plaything of politicians without regard for consequences
  • National Living Wage must be scrapped and power over the National Minimum Wage placed back in the hands of the Low Pay Commission

The National Living Wage is a political football and must be scrapped because it risks creating unemployment, according to a new report released by the Adam Smith Institute this morning.

The report, released ahead of the Chancellor's Spring budget, demonstrates how increases in the minimum wage can accelerate the automation of the workforce, increase unemployment and criminal behaviour, cut the bottom few rungs off of the employment ladder, increase consumer prices and hamper low skilled workers throughout their lives. 

Increases to the National Minimum Wage were decided by the politically independent Low Pay Commission until 2016, when the National Living Wage was introduced and politicians effectively appropriated control over it. The minimum wage for people over 25 years of age is no longer based on complex economic considerations, but hiked up for quick political wins which incur costs on the very workers the NLW claims to benefit. 

Businesses must find additional funds to pay for an increase in the minimum wage or see a fall in profits. They can either hire fewer but more skilled workers, invest in automating their business or outsourcing it abroad, or raise consumer prices to make up the higher cost of labour.

The report reveals how products produced by minimum wage workers, and most likely to be subject to a price increase, are disproportionately purchased by the least well off in society. If the NLW does not result in job losses, then it instead imposes a sales tax on consumers, especially poor ones, raising their cost of living yet higher.

Only around 5% of the UK workforce is currently paid the minimum wage, but this proportion is set to grow as the NLW rises rapidly from £7.60 in 2017 to £9.02 by 2020. The number of workers who’ll have their wages and employability dictated by political whims and maneuvering is only set to increase. 

The report calls for the Chancellor to abandon the National Living Wage and give the Low Pay Commission, with a mandate to boost worker’s wages without risking unemployment, full powers back over the minimum wage. The government could further raise the incomes of the badly-off by increasing tax credits and introducing a Negative Income Tax without risking unintended consequences the NLW incurs.
Sam Bowman, Executive Director of the Adam Smith Institute and co-author of the paper, said:
“We need to do everything we can to raise the incomes of Britain’s worst off workers, but there is a huge danger that the National Living Wage will actually end up hurting them by reducing employment. There is an important difference between the National Minimum Wage and the Living Wage, in that the former is set by a panel of experts with a mandate to minimise the risk of job losses, but the Living Wage is set by politicians whose main interest is looking good on the Ten O’Clock News. That’s a recipe for disaster, and we believe that direct cash transfers like tax credits or a Negative Income Tax would be much less risky ways of helping people at the bottom than the National Living Wage.”
Notes to editors:

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The report ‘Against the National Living Wage’ will be live on the Adam Smith Institute website from 00:01 Friday 24th February 2017 and is available here in advance.

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