UK Minimum Wage Climbs to £11.44/hour - Good for the Economy?

On 1 April 2024, the UK's National Minimum Wage (to apply to workers aged 21 and over) rises by 9.8% to £11.44 per hour. Torsten Bell at the Resolution Foundation has called the introduction of the minimum wage in 1999 the single most successful economic policy of his lifetime.

Possible benefits to the UK economy of a £1 rise in the minimum wage to £11.44

1. Increased incomes for low-paid workers: This can help reduce relative poverty, improve living standards, and stimulate consumer spending, which can then lift aggregate demand and growth. It also reduces dependency on universal credit.
2. Efficiency wage theory: Higher real wages can motivate workers and improve job satisfaction, leading to increased productivity and lower staff turnover. This can benefit businesses by reducing recruitment and training costs.

Potential drawbacks for the economy of a £1 rise in the UK minimum wage to £11.44 per hour

1. Higher labour costs: This can be particularly challenging for small businesses, which may struggle to absorb the additional costs or pass them on to consumers through higher prices. A rising NMW might cause extra cost-push inflation.
2. Employment: may lead some businesses to reduce their workforce, cut employee hours, or opt for automation, potentially resulting in job losses or underemployment, especially in labour-intensive sectors with low profit margins