July Budget 2015: Will George Osborne’s new national living wage hit the number of people in work?

Osborne: “Britain deserves a pay rise, and it is getting a pay rise” (Source: Getty)

Sam Bowman, deputy director of the Adam Smith Institute, says Yes.

There is lots of research into what the minimum wage does to jobs. Of the 103 papers reviewed by economists David Neumark and William Wascher in a 2006 study, most of them showed that raising the minimum wage reduces long-term employment.

Of the 33 most methodologically robust studies, 28 (85 per cent) demonstrated this. The Office for Budget Responsibility estimates that the new living wage will see 60,000 job losses and a £1.5bn cost to the economy overall. This will be among over 25s, who may be their families’ main breadwinners. Until now, the Low Pay Commission has raised the minimum wage very slowly to avoid job losses, and it has often been very restrained in doing so. Those days are now over.

The people who point out that 1997’s minimum wage introduction did not lead to substantial job losses, without considering all the other evidence, are embarrassing themselves. Based on the evidence, there is a consensus: minimum wage hikes cost jobs.

Simon Walker, director general of the Institute of Directors, says No.

The last few years since the financial crash have seen wages subdued, as firms and employees prioritised job security over pay rises. But with the economy set to grow steadily for the next few years, now is the time for businesses to increase pay.

George Osborne’s new living wage is effectively an extra tier on the minimum wage for over 25s, set initially at £7.20, with the intention it will rise to £9 by 2020. This is not an insignificant extra cost for businesses, but the chancellor is helping firms to absorb it with a surprise cut to corporation tax and an increase in the National Insurance employment allowance.

If the living wage rose too quickly, it clearly could damage jobs, but Osborne has wisely asked the independent Low Pay Commission to recommend the rate, paying attention to prevailing economic conditions. He is offering a deal to companies: higher wages for lower tax. We think this is a deal business will accept.

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