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A Higher Minimum Wage Needs A Better Industrial Strategy

11/04/2017 13:12

Yesterday, Jeremy Corbyn pledged that the minimum wage will rise to £10 an hour if Labour win the next general election, outstripping the Conservative's plan for a 'national living wage' of £9 by 2020. If enacted, it is projected that the proposal would lift the pay of nearly 6 million workers or one in five of the workforce. With the employment rate at a record high but rising numbers of people experiencing in-work poverty, our political parties are right to look beyond the quantity of jobs and think seriously the quality of jobs, including how much they pay.

Nonetheless, an ambitious minimum wage hike is likely to worry many businesses. Over the summer, at least sixteen trade associations wrote to Greg Clark, the business secretary, arguing that the government should "exercise caution" and drop its £9 target for 2020. With productivity in the British economy lagging behind our European neighbours, there are far too many businesses paying low wages who feel like they can't risk offering a penny (let alone several pounds) more to their employees.

Forthcoming IPPR analysis shows that the UK's productivity problem is rooted in the UK's large proportion of low-performing businesses. These firms are characterised by three weaknesses: poor management, a lack of ambition to create high-skill jobs and a slow take-up of new technologies. UK manufacturing firms, for example, have an average 'management rating' in international comparisons which is consistently lower than countries such as Germany, Sweden, France and Australia. At the same time, one third of UK employees is overqualified for their current job, the highest rate in the EU-28. Only 83 per cent of businesses in the UK even have a website (compared with, for example, 95 per cent of businesses in Finland).

The government's recent Industrial Strategy Green Paper focuses almost entirely on the external business environment - developing skills, upgrading infrastructure - while doing almost nothing to address the fundamental problems within businesses in the private sector. Increasing the minimum wage to £10 an hour will provide a welcome pay boost for the lowest paid, but unless it is combined with a more innovative approach to the way that most of the economy works it is likely to mean that even more than one in five of the workforce is stuck at the legal wage floor.

Until now, industrial strategy has tended to try and support areas of the economy which have potential for high-growth, such as aerospace, automotive or precision medicine. The sectors and companies where the majority of people work have been ignored. If we want to ensure that the lowest paid get a sustainable increase in their pay, we need a plan to improve productivity and job quality in workplaces across the whole economy.

Some of this work has begun, through the Productivity Leadership Group led by John Lewis Chairman Sir Charlie Mayfield. The government has provided seed funding for a new Productivity Council bringing together business leaders to engage with the rest of the economy to improve management, innovation, digitisation and work organisation. This work must be central to the UK's new industrial strategy, and quickly scaled up. In the end it is the only way we can sustainably end the British economy's addiction to poverty pay.

IPPR is the progressive policy think tank. We develop ideas and answers to the big questions Britain faces, ideas that create a positive vision for Britain.

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