However, as the IFS has cautioned, raising the NLW to an unprecedented high may prompt trade-offs with employment. Moreover, minimum wages often function as a blunt instrument for tackling in-work poverty and low pay. Those who suffer from in-work poverty often work fewer hours and thus do not benefit all that much from increases to the minimum wage. At the same time, only 17% of those who live in the poorest households earn the minimum wage. A minimum wage also fails to address career progression, with the heavy concentration of minimum wage workers persisting in low-paid jobs in sectors such as hospitality and retail. After over 20 years of a national minimum wage, perhaps it is time for a policy rethink.
Singapore has an economy which ranks high on most indicators of economic freedom, and it is interesting to see how it tackles in-work poverty. It has no minimum wage system, but instead has implemented its own ‘Progressive Wage Model’ (PWM). Instead of a national approach to minimum wages, the model focuses on specific low-paid sectors where wages have been depressed. This model provides a clear path for wages to increase by linking them to training and career progression, enabling productivity gains alongside rises in wage. It has led to considerable increases in salary for cleaners, with plans to expand it to other low-paid sectors. Does this model hold any lessons for UK labour market policy? Would a sectoral approach to minimum wages work better?
In fact, a sectoral approach is not new to the UK: it echoes the country’s experience in the 20th century with Trade Boards (later Wages Councils). These were initially set up to address conditions in sweated industries in the early 1900s, and eventually spread to cover a multitude of different industries in the course of the 20th century. They supervised a sector-wide minimum wage and array of conditions for work, and were composed of tripartite bodies of independent members as well as employer and employee representatives. This was much like Singapore’s PWM, where wages are decided by tripartite committee of unions, employers and government. The Wages Councils system was slowly phased out and eventually replaced with the national minimum wage in the 1990s.
Despite this, there is a growing space for sectoral policies today where there is a need to combat poor conditions and labour shortages in low-paid sectors. In particular, taking a sectoral approach and incorporating lessons from a progressive wage model may prove useful in addressing the current crisis facing social care. Low pay across the sector makes it difficult to attract and retain talent and skills, contributing to the care crisis which the UK is facing. The social care currently suffers from a lack of training and a clear career structure – care workers with five or more years of experience are now paid on average just £0.15 an hour more than new entrants. Having a progressive model with a clear career progression would allow the preservation of wage differentials and creation of a career pathway for care workers. In addition, pegging productivity gains to wage increases would help mitigate the ‘bite’ of wage floors, a key problem with across-the-board minimum wages. Moreover, it would help to address low pay across the sector, not just at the very bottom. Tying progression to training would also be a way of introducing minimum qualifications where there currently are none. This would be an important step in raising the profile of the sector and go some way toward raising standards as well as attracting and retaining labour.
In fact, Scotland has introduced sectoral policies in the form of a ‘living wage’ in social care, and similar calls for Trade Boards in social care have been made by think tanks elsewhere in the UK. Perhaps a sectoral approach could be part of the institutional innovation needed to deal with questions of low pay and poor conditions in embattled sectors, rather than imposing an ever-higher National Living Wage right across the economy.