Regulatory Impact Statement - Minimum Wage Review 2009
The Government's agreed objective for the minimum wage [CAB Min (08) 28/24 refers] forms the basis of this review. The minimum wage objective is "to set a wage floor that balances the protection of the lowest paid with employment impacts, in the context of current and forecast labour market and economic conditions, and social impacts".
Two assessment criteria, and related considerations, have been identified to apply the minimum wage objective through minimum wage reviews.
The first assessment criterion is the extent to which any change to the minimum wage would produce gains that are more significant than any losses. The assessment criteria for this criterion include consideration of:
- consistency with the principles of fairness, protection, income distribution and work incentives
- comparison with other income benchmarks and international benchmarks
- consideration of the social and economic impacts of any change to the level of the minimum wage, including on groups likely to be low paid, the net effects of any corresponding withdrawal of social assistance and impacts on the gender pay gap, and
- consideration of the forecast labour and economic impacts of changing the minimum wage, including on earnings, employment and unemployment, labour productivity, the number of employees and the hours they work, industry sectors, nominal gross domestic product and inflation.
The second assessment criterion is the consideration of whether a change to the minimum wage would be the best way to protect the lowest paid in the context of the broader package of income and employment-related interventions, and would meet the broader objectives of the Government.
As per Cabinet's decision, the assessment criteria and considerations are not weighted. Their relative importance depends on the conditions at the time of the review and the Government's judgement. For instance, if adverse employment or economic impacts are the forecast result of a minimum wage rate change, this may be a risk for Ministers to consider. Employment opportunities may need to be protected as well as wages. If adverse impacts are not forecast, then the risks around a minimum wage rate change may be low. Raising minimum wages, however, can also increase labour supply by changing thresholds for participation.