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Employment

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

The government has increased the minimum wage from April 1 2022, but how does this compare to places like Ireland, Spain, the US and elsewhere?

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

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.

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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.

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?

Minimum wage in the UK

The government set national minimum wage is broken down for different age categories. The rate for the highest – 23 and over – has been rebranded as the national living wage, not to be confused with the independently set Living Wage.  

On April 1 2022, the national living wage increased to £9.50 per hour for people aged 23 and above, a 6.6 per cent rise on the previous rate. The government has called it the largest ever increase to the national living wage – which has existed in its current form since 2016 – and said that it would mean a £1,000 per year pay rise for full-time workers.

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But inflation, as measured by the Consumer Price Index, jumped to a 30-year high of 6.2 per cent in the year to February 2022, and is predicted to reach 7.25 per cent in April 2022, making rise below inflation levels

The new rates mean that workers aged 21 or 22 are now entitled to £9.18 per hour (up from £8.36). This decreases to £6.83 for those aged 18 to 20 (up from £6.56), while those under-18 can be paid £4.81 (an increase from £4.62). Apprentices should also be paid a minimum of £4.81 per hour.

The national living wage, for anyone aged 23 and over, is £9.50. So for someone working a full-time job at a 35-hour working week, gross income would work out at about £17,290 per year before tax or pension deductions.

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These increases have not kept pace with the cost of living or spiralling rent prices in the UK, however. 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. 

Rents 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.

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 £5.58. 

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 (£1.64), 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

The minimum wage in Ireland increased on January 1 2022, going up from €10.20 to €10.50 an hour for anyone aged 20 or above .This equates to around £8.76, which is higher than the UK’s £6.83 minimum wage for 20-year-olds but lower than the pay for UK-workers over 22, which is £9.50. 

This drops to €9.45 an hour for 19-year-olds, and €8.40 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.

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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 £11.64.

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 increased its minimum wage from €950 to €965 in September 2021, and then again to €1,000 from January 1 2022. This monthly rate is applicable for 14 payments in a year, but if the payments were made paid in 12 monthly instalments, the figure rises to €1166.66. This works out to £974.84 in sterling.The cost of living in Spain is, on average, 20 per cent lower than in the UK, and rents are 31 per cent lower.

What is the highest minimum wage in the world?

Luxembourg has an hourly wage of €15.53 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 €12.94, dropping to €10.35 for 17- to 18-year-olds, and €9.71 for those ages 15-17.

Should there be a global minimum wage?

The actions of P&O Ferries in sacking its almost entire crew of 800 seafarers to replace them with cheaper agency workers from overseas, highlighted the limitations of a national minimum wage. 

Because P&O Ferries is not registered in the UK, the company was able to hire foreign workers and pay them a rate well below the UK minimum wage – with union RMT claiming that some crew were paid just £1.80 an hour.

As businesses become more global, it has become more difficult for countries to enforce certain standards of pay and employee welfare when a company can simply move elsewhere if it doesn’t like the employment laws where it is operating. 

Economic anthropologist Jason Hickel proposes that the minimum wage in each country be pegged to decent living standards in each country, or whatever it costs to access basic needs including housing, healthcare, education and fuel. This is how the Living Foundation calculates its “Real Living Wage”.

Other advocates of a worldwide minimum wage propose setting it at a percentage, such as 50 per cent, of each country’s median income. The median hourly income in the UK in January 2022 was £14.80 (calculated for a 37.5 hour week), which is very close to the £15 minimum wage being called for by some unions and Labour party members. 

As an international agreement, it could be managed by the International Labour Organisation in Geneva, says Hickel, who says he has spoken to people in the ILO who claim to have the capacity to manage such a system. The next step, therefore, would be getting commitments from all nations. 

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 because the value minimum wage is relative to what everyone else is earning, Professor Alan Manning at London School of Economics suggests a more accurate measure would be to look at minimum wage in relation to the average earnings of full-time workers.

In the UK, the median hourly income was £14.80 in January 2022 (calculated for a 37.5 hour week) , so a minimum wage of £9.50 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 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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