In a grand social experiment, Britain adopts a “National Living Wage”

“I can afford one of these now.”
“I can afford one of these now.”
Image: Reuters/Lucy Nicholson
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“Britain deserves a pay rise,”  George Osborne declared last year. And what a pay rise.

The British chancellor announced a “National Living Wage,” where those aged 25 and over will see their minimum pay jump from £6.70 ($9.63) to £7.20 ($10.30) an hour. The increase—the biggest year-on-year increase since 2001—comes into force today (April 1).

The government claims over a million workers will directly benefit from the “largest annual increase in a minimum wage rate across any G7 country since 2009 in cash and real terms.” And the UK’s Low Pay Commission (pdf), the organization tasked with advising the government about the national minimum wage, says this is the “biggest change” since its introduction in 1999.

“We’re going into uncharted waters and we just don’t really know,” Richard Dickens, an economics professor at Sussex university and member of the Low Pay Commission, told the Financial Times (paywall). “In some ways, it’s a social experiment.”

The inflation-adjusted minimum wage has gradually been increasing in the last five years, with the latest increase giving the UK a boost in annual minimum wage compared to its OECD counterparts.

The value of the minimum wage relative to a person’s earnings in median terms is known as the minimum wage bite. This is set to gradually increase in the next four years, with the government’s committed to raising the minimum wage to at least 60% of median earnings by 2020—a rise to around £9 per hour by 2020.

Is that good? Yes, though some countries already sustain their minimum wage at 60% of median earnings, including Australia and France. With the new minimum-wage increase, the UK merely moves up compared to its peers.

Over the years, the percentage of jobs in the UK paid below the living wage has also been on the decline, while average wages and salaries have gradually been increasing following the economic crash in 2007.

That said, not everyone is set to equally benefit from the wage increase. The Resolution Foundation found that while as a third of the workforce will get a pay rise, there is far less of an impact in other areas—namely the already-expensive capital of London.

And the minimum wage was previously split into four age-based categories, with the highest band set at 21 and over. The government’s new higher minimum wage created a fifth—25 and over—which benefited from the living wage. Unsurprisingly, those under 25 aren’t too happy to be missing out on this pay increase.

Britain’s minimum wage increase comes against the backdrop of a powerful minimum-wage movement in the US (paywall). California lawmakers have approved the country’s highest statewide minimum wage—at $15 an hour by 2020. (It was boosted from $10 to $10.50 on Jan. 1.) New York legislators had reached a deal to raise the minimum wage to $15 an hour, rising faster in New York City.

Even Walmart plans to raise its minimum wage this year to $10 an hour—just slightly less than Britain’s new Living Wage.