Wages Councils: Was There a Case for Abolition?

Abstract

AbstractThe 1993 Trade Union Reform and Employment Rights Act removed the remaining minimum wage protection for some 2.5 million low paid workers by abolishing the last 26 UK Wages Councils. The Government's case for abolition rested on three key arguments: (1) minimum wages do little to alleviate poverty since most covered workers do not live in poor households; (2) when in operation, minimum wages reduced employment in covered industries; (3) the problems of poverty that the wages councils were set up to deal with in 1909 are not relevant in today's labour market.In this paper we address each of these points in turn. We find that: (a) 50 per cent of families with at least one earner being paid wages council rates come from the poorest 20 per cent of families; (b) the existing evidence suggests that abolishing the Wages Councils is unlikely to create jobs; (c) the widening earnings distribution in the UK means that low pay is an increasingly important determinant of poverty. If anything, there appears to be an increasing need for minimum wage legislation in the UK.