July 20, 2024

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Wages in the U.K. are growing twice as fast as Europe and the U.S. thanks to one simple policy

2 min read

The U.K.’s new Labour government has emerged from its landslide election victory, promising to return the country to its economic heights. The latest evidence of worker pay growth will give them a good platform to deliver on that promise.

Wages rose by 7% in the U.K. in the year to June, according to data from the Indeed Hiring Lab. That’s almost twice the rate of the Eurozone, where wages increased by 3.7%, and more than double growth in the U.S., which rose at 3.1%.

The results diverge with the broader economic context of the three economies. The U.K. is expected to grow more slowly than the Eurozone and the U.S. this year, according to the latest IMF forecast. 

One explanation is likely to be a bumper increase in the U.K.’s National Living Wage, the legal minimum employers must pay staff over 21.

The U.K. government’s remit is to keep the national living wage at two-thirds of the U.K. median wage, in line with recommendations from its advisory board, the Low Pay Commission. This target helps safeguard against workers falling into relative poverty. 

Keeping up with inflation and private sector wage growth meant the National Living Wage increased by 9.8% in April, its third largest increase since it was introduced in 2016. The national minimum wage pay rise was even larger for 16 to 20-year-olds.

Tony Blair’s Labour government introduced the national minimum wage in 1999. The U.K. minimum has grown by 70% since then. The median wage, meanwhile, has only grown by about 20% in that period, suggesting a reduction in wage inequality in the U.K.  

The Low Pay Commission estimated that around 1.6 million people were paid at or below the minimum wage in April last year, so increases in the base could have outsized effects on growth. 

Indeed says the National Living Wage contributed to the U.K.’s fast wage growth last year, but it’s not the full explanation.

“Strong wage growth across all pay ranges suggests that the…

Ryan Hogg

2024-07-09 20:00:00

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