Investor Alert

Dec. 10, 2020, 12:00 p.m. EST

The U.K. is increasing the minimum wage. How does it compare with the U.S. and rest of the world?

By Jack Denton, Callum Keown and Rupert Steiner

The U.K. chancellor of the exchequer has announced a 2.2% increase to the national living wage, making it one of the highest in the world.

It came as part of a spending review that outlined the historic damage inflicted on the U.K. economy by the coronavirus pandemic.

Rishi Sunak, the minister in charge of the Treasury, said that the government was increasing the minimum pay for the majority of workers to £8.91 ($11.89) per hour from £8.72, and lowering the age bracket to 23 years old.

The U.K. will have one of the most generous minimum pay bars in the world, above all but eight states and the capital city in the U.S., and below only a few countries in Europe — the region with the highest minimum wages.

In a speech to lawmakers on Nov. 25, Sunak said the U.K. economy was set to contract by 11.3% this year, “the largest fall in output for more than 300 years, according to Office for Budget Responsibility (OBR) forecasts.

The economy is expected to grow 5.5% next year and 6.6% in 2022. “Even with growth returning, our economic output is not expected to return to precrisis levels until the fourth quarter of 2022, the chancellor added.

Government borrowing has soared this year due to the economic impact of the COVID-19 pandemic and government measures taken in response. Sunak revealed U.K. borrowing in 2020 was forecast to total £394 billion, equivalent to 19% of gross domestic product — the highest recorded level in peacetime.

Despite the “long-term scarring” to the economy, Sunak announced plans to increase the national living wage, which is the minimum wage for U.K. workers above a certain age, previously set at 25 years old. He also committed to raising the minimum wage rates for workers 22 years old and younger.

“Taken together, these minimum wage increases will likely benefit around two million people,” Sunak said in his address to the House of Commons. “A full-time worker on the national living wage will see their annual earnings increase by £345 next year.”

The federal minimum wage in the U.S. is $7.25, with 29 states and the District of Columbia legally requiring workers be paid more. The highest minimum wage in the U.S. is in Washington, D.C., at $15, followed by $13.50 in the state of Washington and $13 in California for employees of businesses with 26 or more workers.

Six states — California, Connecticut, Massachusetts, New Jersey, Illinois, and Maryland — have committed to annual increases that will bring their minimum wage to $15 as early as 2022 and as late as 2025. After this year, the minimum wage in New York will be adjusted annually for inflation until it reaches $15, from the current $11.80 outside of New York City and its immediate surrounds.

The U.K.’s new wage is slightly lower than the €10.15 ($12.08) per hour minimum in France, and higher than Germany’s €9.35 ($11.13) rate.

Compared with Commonwealth counterparts, the U.K.’s new wage will be higher than most of Canada, where the rate ranges between provinces from $11.45 CAD to $16.00 CAD ($8.81 to $12.31). However, it will be lower than $19.84 AUD ($14.20) in Australia and $18.90 NZD ($13.22) in New Zealand.

A number of Scandinavian countries, including Denmark and Sweden, don’t have a legal minimum wage, instead relying on longstanding collective bargaining agreements within industries between unions and employers’ associations. Wages in Scandinavia are among the highest in the world, with the average minimum wage earned by workers in Denmark sitting at around 110 Danish krone ($17.69).

The chancellor’s spending review detailed a raft of heavily trailed developments including:

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