The minimum wage and the law of unintended consequence
IN RECENT YEARS, British governments of both political hues – Conservative and Labour – have significantly increased the statutory minimum wage. In the ten years between 2016/17 and 2026/27, the statutory minimum wage for people aged twenty-one and over increased by more than three quarters, from £7.20 per hour to £12.71 per hour. Over the same period, the statutory minimum for sixteen to eighteen year-olds doubled from £4 to £8 per hour.
These increases were no doubt driven by the best of motives. A higher minimum wage should reduce economic hardship among families whose main breadwinner is paid at, or close to, the statutory minimum. It should reduce their dependence on State benefits. These objectives should be achieved at no direct cost to the Exchequer, with the costs borne by employers rather than HM Treasury.
But has the policy achieved these objectives? Or has it had unanticipated, and rather less desirable, consequences?
The highest minimum wage in the world
The table below compares the statutory minimum wage in United Kingdom with a sample of ten other OECD countries.
| Country | [1] Minumum wage per hour | [2] Average wage per hour | [3] Minimum as a % of average wage |
| United Kingdom | £12.71 | £19.67 | 64.6% |
| Australia [i] | £12.41 | £21.34 | 58.2% |
| Canada [ii] | £9.59 | £19.53 | 49.1% |
| Denmark [iii] | £13.95 | £34.07 | 41.0% |
| France [iv] | £10.33 | £20.43 | 50.6% |
| Germany [v] | £11.15 | £24.24 | 46.0% |
| Greece [vi] | £4.21 | £10.94 | 38.5% |
| Ireland [vii] | £12.30 | £27.54 | 44.7% |
| Japan [viii] | £5.24 | £12.60 | 41.6% |
| Spain [ix] | £7.71 | £13.48 | 57.2% |
| USA [x] | £5.41 | £19.40 | 27.9% |
| Average | £9.55 | £20.30 | 47.2% |
Three key points emerge from the Table:
- the UK has a higher Minimum Wage today than any of the other countries in the sample, with the possible exception of Denmmark which does not set a statutory minimum;
- the UK thus appears to have the highest Statutory Minimum Wage of any major country in the world, even though its average hourly rate is below the average of the eleven OECD countries summarised in the Table;
- as a result, the UK’s minimum wage per hour is far higher as a percentage of the average wage than any other country. In the eleven OECD countries in the Table, the Minimum Wage is about half of the average wage. In the UK, it is closer to two-thirds.
Unintended Consequences
So great news for anyone on the Minimum Wage, then?
Well, perhaps not so much.
For a start, there are fewer jobs available, particularly for younger people just entering the workforce. As the cost of employing workers goes up – and made even higher by Government increases in employers’ National Insurance payments – UK businesses are looking for ways to reduce headcount.
In 2019, the UK unemployment rate stood at 3.7 per cent. By the end of 2025, it had increased to 5.1 per cent. The consensus among UK economists is that unemployment will rise further in 2026.
The group worst affected are the young, trying to get their first step on the jobs ladder. In 2019, approximately 11 per cent of sixteen to twenty-four year-olds were unemployed. By the end of 2025, the unemployment rate among sixteen to twenty-four year olds had risen by a half, to 16 per cent. That is the figure for youngsters actively seeking work. But the problem goes far wider than them. According to the Resolution Foundation, almost a million youngsters are today Not in Employment, Education or Training (NEET) – an abandoned generation, victims of political leaders who believe they are better placed to set wage levels than the free market, and their views should override contracts freely entered into between employees and employers.
The high Minimum Wage level makes the UK the Number One Destination of Choice for many people across the world seeking to improve their economic prospects. The Minimum Wage offers them the prospect of earning more in an hour than they could earn in a day, or even a week, in their native lands. So who can blame them if they seek to enter the UK labour market, by legal means or otherwise?
The fault is not theirs, but the policy-makers who passed laws setting the UK Minimum Wage at the highest level in the world.
What is to be done?
Having established an excessively high minimum wage, it cannot easily be reduced. Any political leader who proposed cutting the minimum wage would be met with howls of anguish that would finish their political career.
In the short term, the immediate priority must be to call a halt to real increases in the minimum wage year by year. The annual increase from now on should be no greater than the rate of inflation, and ideally less, so that, over time, the minimum wage progressively falls to 50 per cent of the average wage.
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Sources:
[i] Australia: Australia’s average hourly wage (median) was approximately A $42.90 per hour as of August 2025, according to the Australian Bureau of Statistics (ABS), while the national minimum wage was $24.95/hour. A rate of exchange of A $2.01 = £1.00 was applied to convert A $ into £ Sterling.
[ii] Canada: Canada’s average hourly wage in April 2025 was C $36.13 for all employees. Source: https://www150.statcan.gc.ca/n1/pub/14-28-0001/2025001/article/00001-eng.htm. The minimum wage in Canada varies by Province; the rate given was the Federal minimum in April 2025. A rate of exchange of C $1.85=£1 was applied to convert C $ into £ Sterling.
[iii] Denmark: The average hourly wage in Denmark was approximately DKK 293 per hour (gross) in 2025. Denmark has no Statutory Minimum as wages are set by collective agreements, but minimum rates are quoted at between DKK 110-130. A rate of exchange of DKK 8.6 = £1 was used to convert Danish Kroner into £ Sterling.
[iv] France: The average wage in France was estimated as Є23.50 in 2025, with a minimum wage of Є11.88. A rate of exchange of Є1.15 = £1 was used to convert Euros into £ Sterling.
[v] Germany: The average hourly wage in Germany was estimated as €27.88 gross in early 2025. The statutory minimum wage was set at €12.82 per hour in 2025. A rate of exchange of Є1.15 = £1 was used to convert Euros into £ Sterling.
[vi] Greece: The average hourly wage in Greece was estimated as €12.58 by the OECD, reflecting low pay compared to other EU countries. The quoted statutory minimum wage is approximately €4.84/hour (or €968.30/month). A rate of exchange of Є1.15 = £1 was used to convert Euros into £ Sterling.
[vii] Ireland: The average hourly wage in the Republic of Ireland was approximately €31.72 in Q1 2025, according to the Irish Central Statistics Office (CSO). The National Minimum Wage was €14.15/hour for adults. A rate of exchange of Є1.15 = £1 was used to convert Euros into £ Sterling.
[viii] Japan: Japan’s national average hourly rate was approximately ¥2,645 with a minimum wage of approximately ¥1,100 as of late 2024/2025. A rate of exchange of ¥210 = £1 was used to convert Yen into £ Sterling.
[ix] Spain: The average hourly wage in Spain generally falls between €13 to €19 gross. A figure of €15.50 is used for gross hourly pay, based on from the Spanish National Institute of Statistics (INE) for 2024/25. The minimum wage is estimated at approximately €8.87/hour (2024). A rate of exchange of Є1.15 = £1 was used to convert Euros into £ Sterling.
[x] USA: The average hourly wage in the USA is estimated at approximately US $26. The US Federal Minimum Wage is $7.25 per hour, unchanged since 2009, but most States and Cities have set higher minimums. For example, Washington State set a State Minimum of $17.13/hour in early 2026; New York City $17.00/hour and California: $16.90/hour. A rate of exchange of US $1.34 = £1 was used to convert US dollars into £ Sterling.
