Buzz People

Minimum Wage Increase: Will it Really Hurt the Economy?

To believe the reaction from some corners of the business world, you’d think economic ruin was certain if the minimum wage was increased to £8 an hour by 2020, as Labour leader Ed Miliband proposes. Let’s crunch the numbers. The minimum wage will be £6.50 an hour from next month. To get to £8 by 2020 would require the compound annual increase to be 3.5% a year. True, that’s more than twice the current level of inflation on the CPI measure. On the other hand, the economy is supposed to be so strong that the Bank of England is warming up for a rate hike. In that context, is 3.5% a year really so radical?
Miliband’s critics are on stronger ground in arguing that the Low Pay Commission is best left to get on with its job without interference from politicians. Each year the commission gathers evidence on what level of increase the economy can bear without destroying jobs. That is one reason why its recommendations tend to be accepted without (much) complaint from the business lobby.
Register Now