The Government’s planned moved to a new ‘National Living Wage’ should be abandoned and the National Minimum Wage simplified, says the right-wing Institute for Economic Affairs (IEA) think tank.
In a new report published today, the IEA claims the NLW “does nothing for those out of work or many of those working part-time or in poverty”, adding “wage floors have a significant negative effect on employment levels”.
The report warns that the NLW could threaten “jobs, hours and benefits such as pensions, premium pay on weekends/overtime and other perks”, claiming any increased pressure on the labour market “will inevitably hit the young and unskilled the hardest”.
Former Chancellor George Osborne announced the introduction of a new NLW for workers aged 25 and over last year, replacing the NMW with an hourly rate of £7.20 per hour. However, this still remains short of the £9.40 per hour (inside London) advocated by the Living Wage Foundation (£8.25 outside London).
The IEA says government intervention on pay is “unnecessary” and “often based on poor economic analysis”, whilst seemingly accusing the government of “political grandstanding” and the “politicisation” of pay. “How much people are paid and how that pay is determined have become too politicised, with a worrying increase in political grandstanding and direct intervention”, the thinktank says in a press release published on its website.
[contextly_sidebar id=”q7hPXoBnWW4evZX3MofNlaBnLEmejcjT”]On the gender pay gap, the IEA says “the government should scrap the planned publication of crude league tables as there is little evidence that the gender pay gap results from discrimination”.
According to the IEA, “there is no evidence to suggest that any differences between male and female pay can be attributed to employer discrimination”, claiming median earnings of women aged 20-39 “are now higher than men’s”. Forcing businesses to reveal pay gaps risks encouraging firms “to manipulate the data or even make them hesitant about hiring women unless it is for a high-paying role to save face”, the thinktank says.
The IEA also appears to defend the high pay of executives, saying the “globalised market for top executives means their pay naturally increases with competition as in other sectors”.
They warn any government inference “could also discourage large multinationals from basing themselves in the UK”, adding: “Due to the growing antipathy towards executive pay, even local and national government are now finding it difficult to increase public sector pay across the board”.
Ryan Bourne, Head of Public Policy at the Institute of Economic Affairs, said: “Price controls in wage-setting have severe negative consequences. Regulations that try to influence wages in order to meet an arbitrary target will create perverse incentives in hiring and compensation decisions.
“Sadly, rather than accepting that employers and employees come to agreements about pay according to specific job, pay policy is being driven by popular misconceptions, such as that pay levels are determined by discrimination, or that pay should compensate workers for their living costs. Where political views on pay are concerned, we have seen a regression to the meme.”
Jon Trickett MP, Labour’s Shadow Business Secretary, accused the IEA of “scaremongering” and said “abandoning the NLW would be a huge step backwards”.
Mr Trickett said: “With workers in Britain suffering poor wage growth and record levels of in-work poverty, a living wage has never been more urgent. Let’s be clear, the Government’s living wage does not go far enough but, for millions of workers, it will mean not having to choose between heating the house and putting food on the table.
“When Labour introduced the minimum wage in 1999, there was vocal concern about the threat it posed to jobs and businesses. These never came to pass. The IEA report is yet more scaremongering, and ignores the fact that fairly-paid employees are more productive, and that a race to the bottom is bad for workers and businesses alike.
“More needs to be done – to bring under 25s in line with the rest of the workforce, to keep incomes in line with the cost of living, and to improve people’s working lives beyond pay. Labour have launched Workplace 2020 to start to explore solutions to these issues. In the meantime, abandoning the National Living Wage would be a huge step backwards.”
This article was last updated at 07:23 on 26 August 2016.