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Employment

Minimum wage UK: How does Britain compare to the rest of the world?

It looks likely the government will increase the national minimum wage for a second time in 2021, but who has the highest minimum wage in the world?

The national minimum and living wages have increased every year since they were introduced in the UK. But this does not mean they have kept up with the cost of living. 

In his Autumn Budget, Chancellor Rishi Sunak announced a rise to the national living and national minimum wage, claiming that the new rates “ensures we’re making work pay and keeps us on track to meet our target to end low pay by the end of this Parliament”. 

Each country around the world uses a different method for deciding upon their minimum wage, as well as what amounts different age groups should receive.

Some countries establish a minimum wage per hour, others per working day, week or month. There are still many countries that do not have a minimum wage at all.

Generally, the national minimum wage in this country increases by around 4 per cent, in line with average rates of inflation. The minimum wage has to keep up with the rate at which prices are rising, otherwise people will become poorer despite earning the same.

Of course, different countries have different costs of living, levels of inflation and average incomes. But how does the UK fare in the grand scheme of things? And who has the highest minimum wage in the world?

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Minimum wage in the UK

It is the responsibility of the government to set the national minimum wage. It is broken down for different age categories with the rate for the highest age category – 23 and over – rebranded as the national living wage. 

Currently, workers aged 21 or 22 are entitled to £8.36 per hour. This decreases to £6.56 for those aged 18 to 20, while those under-18 can be paid £4.62. The national minimum wage also applies to apprentices, who can be paid £4.30 an hour. 

The national living wage, for anyone aged 23 and over, is £8.91. So for someone working a full-time job at a 35-hour working week, gross income would work out at about £17,300 per year before tax or pension deductions.

As a rule of thumb, housing is considered affordable if it constitutes no more than a third of a person’s income.

Anyone 23 or over, working full time on the national living wage, will not be able to rent a home for less than a third of their pay in a single region of England, according to recent estimates of monthly rents released by the ONS. 

Homes in the lowest priced quartile in the cheapest area, the north east, averaged at £425, which is still more than a third of a living wage salary after tax deductions.

In a bid to keep up with rising costs of living, the government announced in the autumn Budget that the minimum wage for all age brackets would be going up from April 2022. 

The minimum wage for people aged 23 and above will rise from £8.91 per hour to £9.50.

Those aged 21 and 22 will see the greatest increase to their pay; up 83p to £9.18, while 16- and 17-year-olds will get just a 19p increase and 18- to 20-year-olds a 27p increase.

The Living Wage Foundation argues the national minimum and living wages do not pay enough to constitute a livable income. The group publishes the “real living wage” each year based on inflation and the cost of fuel, energy, rent and food.

The Living Wage Foundation set the previous rate of £9.50 per hour in November 2020, so the government’s own minimum wage (for people aged 23 and above) has only just hit this.

But shortly after the Budget, the Living Wage Foundation announced a new rate of £9.90 across the UK, and £11.05 for London.

This is almost £2,000 per year more than the government’s current national minimum wage allows. 

The Labour party recently voted to put the minimum wage up to £15 if they are elected into government.

“Ten pounds an hour is what we were talking about in 2014, 2015. The world’s moved on, prices are rising, we see every day the pressures working people are under,” MP Andy McDonald told PoliticsJoe after he resigned from his role in the shadow cabinet in protest at being instructed to argue against a £15 minimum wage. 

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Minimum wage in the US

The minimum wage, also called the federal minimum wage, has been stuck at $7.25 an hour since 2009, which equates to a measly £5.33. 

This is reduced for staff who work in ‘tipped labour’ – restaurant servers or bar staff – who must be paid a minimum of $2.13 per hour (£1.57), as long as the hour wage plus tip income equals at least the minimum wage. 

Individual states may set a higher minimum wage and Washington DC has the highest in the US at $15.20, followed by California at $14.00. In total, 21 states have never raised the minimum wage higher than the federally mandated $7.25.

The Fight for $15 started to gain momentum among fast-food workers in 2012 and has picked up again since Joe Biden was elected in November 2020. 

The president had formerly campaigned for a $15 minimum wage, and put this promise in his election manifesto. He has yet to make good on this promise, but did signed an executive order raising the minimum hourly rate for federal contractors to $15 by 2022.

Despite being more than double the federal minimum wage, campaigners say that even $15 wouldn’t make enough to cover necessities such as food, rent and health care. 

There is not a single state, county or city anywhere in the country where a person working 40 hours a week on minimum wage can afford rent for a two-bedroom property, said a recent report from the National Low Income Housing Coalition.

Americans would need to earn $20.40 per hour to rent a modest one-bedroom home and pay bills, according to the study. 

Minimum wage in Ireland

Currently, the national minimum wage in Ireland is €10.20 an hour for anyone aged 20 or above .This equates to around £8.68, which is higher than the UK’s £6.56 minimum wage for 20-year-olds but lower than the pay for UK-workers over 22, which is £8.91. 

This drops to €9.18 an hour for 19-year-olds, and €8.16 an hour for 18-year olds. 

The Republic of Ireland Living Wage is campaigning for a living wage of €12.90 which they say is the minimum amount that makes an acceptable standard of living.

The cost of renting a home in Ireland rose by 2.7 per cent in 2020 to €1,256 per month, according to the Residential Tenancies Board (RTB). This would leave a person aged 20 and working 40 hours a week on minimum wage with less than €200 per month to live on.

Minimum wage in Australia

As of July 1 2021 the minimum wage in Australia is AUD $20.33 an hour, giving them the second highest minimum wage in the world. Converted into pounds, this would be £10.90.

Australia’s strong currency gives a high conversion rate against the euro or pound, attracting seasonal workers who make more money per hour than they would in the UK or European countries such as Spain. However, the cost of living in Australia is on average 10 per cent higher than in the UK. 

The median cost to rent a room in Australia in 2021 was calculated as between AUD $160 per week for the most affordable area – Perth, and AUD $260 for the most expensive – Sydney, by Rent.com.au

Someone earning minimum wage would have to work 10 and 16 hours respectively, after tax, to afford to rent a single bedroom in either of these places. 

The Fight for AUD $25 is being campaigned for by the United Workers’ Union and Retail and Fast Food Workers Union.

Minimum wage in Spain

Spain recently increased its minimum wage from €950 to €965, giving workers an extra €15 euros. It is important to note, however, that this is calculated as paid over 14 installments, and workers would receive €1,125.80 if paid monthly. This works out to £958 for full time workers.

Though the minimum wage saw a 1.6 per cent increase, Spain’s consumer price index calculated that costs of living are 3 per cent more expensive than the previous year. 

The cost of living in Spain is, on average, 20 per cent lower than in the UK, and rents are 31 per cent lower.

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What is the highest minimum wage in the world?

Luxembourg has an hourly wage of €15.27 for skilled workers aged 18 and over, making it the country with the highest minimum wage in the world. To be considered a skilled worker, the employee must have a recognised official certificate at least equivalent to a vocational skills qualification.

If they are unskilled and aged 18 or over, employees can expect to earn €12.73, dropping to €10.18 for 17- to 18-year-olds, and €9.55 for those ages 15-17. 

So, how does the UK compare to the rest of the world?

Simply viewing minimum wage as an isolated amount of money, the UK ranks as having the eighth highest minimum wage in the world, below Luxembourg and Australia, but above Ireland – which places ninth. The US doesn’t even make the top ten. 

But minimum wage is relative and Professor of economics at London School of Economics Alan Manning suggests a more accurate measure is looking at what a country’s minimum wage is in relation to the average earnings of full-time workers.

In the UK, the median hourly income is £13.68, so a minimum wage of £8.91 is not dramatically lower, though it could be brought into question whether wages in general are too low. 

“It’s quite plausible that how high a level of minimum wage a country can support depends on the average level of earnings in that country,” he said. Which is why, in his opinion, the UK economy would not yet be able to support a minimum wage of £15

Viewing the UK’s minimum wage relative to average earnings, “the UK is towards the top.” Though the minimum wage in countries such as Chile ($440) and Columbia ($263) seems very high compared to workers’ average incomes, Manning questions whether it is enforced. 

So while a country might seem to have a relatively high minimum wage, it is important to question how widely this is in effect on the ground.

How is the minimum wage enforced in the UK?

Employers who are found to be flouting the minimum wage can be fined, and then taken to court if they continue to refuse to pay. 

The Low Pay Commission and Department for Business, Energy and Industrial Strategy (BEIS) names and shames employers who have failed to pay all of their employees at least the minimum wage.

Household names including John Lewis PLC, The Body Shop and Sheffield United Football Club were issued fines in 2021. 

But new research from the Resolution Foundation has found that the fines aren’t steep enough to be a deterrent and publicly shaming them has little impact.

The three-year study by the think tank found consumers “always favour cheaper prices over ethical concerns” – leading experts to call on the government to do more than “name and shame” firms who exploit their workers.

They suggested that a company found to be paying workers under the minimum wage would need to be fined around 700 per cent of arrears (overdue wage payments) to counteract the savings the company made in docking pay.

If you are being paid less than the minimum wage for your age category, you can report your employer to HMRC.

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