National Minimum Wage

Position Relative to Average Earnings
Chapter 5: Setting the Rate
5.96 The bite of the minimum wage is another way of assessing the impact of the minimum wage
on the earnings distribution. In April 2011, according to ASHE, the median gross hourly
earnings (excluding overtime) of all employees aged 21 and over (full and part-time) was
£11.28 an hour. In order to properly compare this median with the recommended adult rate
for October 2012, it needs to be uprated by the predicted growth in average earnings. On
that basis, the adult rate of £6.19 is expected to be about 52.9 per cent of estimated median
earnings for those aged 21 and over (£11.70) in April 2013. This is slightly lower than the
estimated bite at the median in April 2012 of 53.0 per cent for employees aged 21 and above.
5.97 Using the mean, the bite in April 2013 is estimated to be around 40.8 per cent for employees
aged 21 and over based on the earnings assumption. Again, this is slightly lower than the bite
at the mean in April 2012.
5.98 In order to compare the estimated bite with the historical time series we need to exclude
those aged 21 from the analyses. In April 2013 £6.19 is expected to be about 52.1 per cent of
median earnings for those aged 22 and over. Compared with mean earnings, we estimate the
bite to be around 40.4 per cent for those aged 22 and over. The bites at both the median and
mean for those aged 22 and over are expected to be slightly lower in April 2013 than in April
2012. As we have recommended freezing the rates for young people their minimum wage
bites would be expected to fall.
Impact on Household Income
5.99 When the adult minimum wage increased to £6.08 in October 2011, gross weekly income
would have been £212.80 for a 35 hour week. Using HM Treasury estimates for the 2011/12
tax year, this gross income would have been equivalent to a net income of £205.57 for a
single person working full-time with no children (a net wage of £5.87 an hour for a 35 hour
week). The corresponding amount for a couple with one child (one partner working and the
other not) would have been around £322.75 (equivalent to a wage of £9.22 an hour for a 35
hour week).
5.100 Again assuming a 35 hour week, gross weekly income would increase by £3.85 to £216.65
following the minimum wage increase to £6.19 an hour in October 2012. Taking into account
the minimum wage uprating and the 2012/13 tax year, the net weekly income for a single
person would rise by £4.30 to £209.87. For the one-child family, net income would rise by
£6.89 to £329.64. The effective hourly rate for the single person would be £6.00 (13 pence
higher than in October 2011) and for a one-child family would be £9.42 (20 pence higher than
in October 2011). At this stage we are unable to assess the impact of the changes to the tax
and benefit regime for 2013/14. We have commissioned research for our next report that will
investigate the impact of the introduction of Universal Credit and its interaction with the
minimum wage and the tax and benefit system from 2013/14 onwards.
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