We show that minimum wages generate positive productivity effects and can thus reduce the number of working poor without any of the frequently assumed negative side effects. Our new study now establishes a vital reference point in the debate. In a similar vein, productivity concerns preoccupy many commentators, with evidence on the minimum wage-productivity link remaining scarce and inconclusive. Debates around the recent introduction of a national minimum wage in Australia and Germany, discussions of the level of state and federal minima in the USA, calls for a European minimum wage and low pay concerns in multi-national supply chains have been important internationally. Low pay poses issues for managers internationally. It is, of course, not just a matter of concern in a British context. With the new government goal to build a Britain that works for all and the post-Brexit uncertainty affecting businesses and consumers, the notion of ‘living wages’ remains a thorny issue in Britain’s public debates. But could there be any other productivity enhancing effects of the National Living Wage?
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In some cases their costs have already lowered despite the increase caused by the living wage. Many companies have already started looking into overcoming this by reducing their costs through better workforce management. According to some commentators, the government rate has certainly given businesses a big problem.
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Government has warned businesses that they need to ensure they are paying their staff correctly, as the National Living Wage will be enforced as strongly as the National Minimum Wage was. These rates replace the £6.50 minimum wage. The wage starts at £7.20, increasing to £7.50 from April 2017, and rising to £9 an hour by 2020. The British Government’s new National Living Wage became law on 1 April 2016. Quite unexpectedly, George Osborne, the Chancellor of the Exchequer at the time, used his first Conservative Budget, in July 2015 to slash benefits for low-paid workers – and simultaneously forced businesses to pay them more.