The Prime Minister Boris Johnson is set to raise the living wage to move to a more productive and ‘high wage’ economy. The rise in wages is set to come just weeks after the Conservative government moved to cut universal credit by £20 for the lowest income earners in the country.
Why are these increases happening?
The rise in living wage is expected to be around 6.6%, raising salaries for those over the age of 23 from £8.91 an hour to £9.50. This marks the first-time wages have risen in the UK since April of this year when they increased by 2.2%. The Conservative government believes that a rise in wages will help combat the current supply chain issues caused by a shortage of unskilled workers in employment. The aim is that raising living wages to incentivise the UK population to take up desperately needed work in the wake of Brexit causing shortages to cheap unskilled labour from abroad.
Additionally, the government is seeking to offset the cut to universal credit by raising wages, in order to account for the £20 per week loss of universal credit, but also encourage unemployed previously on the scheme to seek work. Deputy Prime Minister Dominic Raab stated in an interview with Sky News, “As we come through the pandemic, with youth unemployment going down, employment going up, we need to transition. We don’t want to see people reliant on the welfare trap.”
The Deputy PM has previously defended the decision to cut universal income claiming it to be inefficient in the long run, and it seems that with this increase to national minimum wage the government is aiming for a more sustainable way to tackle economic growth.
What effects are these changes going to have?
The most well-known effect of increasing the living wage is known by economists as ‘Wage-push’ inflation, where in the increase in wages creates a technical imbalance in the labour market boosting inflation. However historically this has not always been the case and the PM believes that it is worth the risk in order to stimulate a currently stagnating economy.
This change is also aligned with The Living Wage Associations’ estimate as to what the national living wage is. This estimates the living wage someone should have to be able to afford to live (rent, bills, food etc. is taken into account). They estimate the real living wage to be £9.50 nationwide and specifically £10.85 in London, with the changes set to match that nationawide.
This change to the living wage is undoubtedly going to provide the UK economy with a much-needed boost, should it come in the following weeks. It is also likely that this change will begin to turn around a rising unemployment rate, as well as boost public spending.