Minimum wage to Rise in October - Who Wins, Who Loses?

The UK Government has accepted the Low Pay Commission recommendation that the National Minimum Wage should rise to £5.35 per hour in October 2006.

Before its introduction in 1999, there were concerns that the minimum wage would lead to job losses. But the Low Pay Commission says that the wage has not had significant adverse effects on employment creation, a conclusion supported by evidence from academic research .

If wages go up, something else has to give. If the effect on jobs has been limited, what gave?

Recent evidence from the Centre for Economic Performance shows that one effect of the wage has been to reduce the profitability of firms. So far, the squeeze on profit margins has not forced firms out of business. Either they are 'taking the hit', shifting revenue out of profits and into higher wages, or these kinds of effects might take longer to come through.

Futureskills Scotland
March 2006