The Resolution Foundation’s latest report presents a puzzle about low-wage jobs in Britain. Since the national minimum wage was introduced in 1999, aggressive hikes in it have been a “policy triumph”, the report says, boosting pay for women and the young without causing major net job losses. Yet over that same period, job satisfaction among low-paid workers has declined. Before the minimum wage’s introduction, a solid 70–75 per cent of the lowest earners were satisfied with their jobs. This dropped to only 57 per cent before the pandemic.

Despite a much higher minimum wage, the think tank points out that low-paid employees often lack the “security, flexibility, or control” at work that higher earners enjoy. A striking example is that half of shift workers get less than a week’s notice for their schedules. Moreover, low earners face more volatile hours and pay, along with stingier sick benefits. Black and disabled workers are disproportionately affected by such “bad jobs.”

The report thus argues for new government “rights” to address these deficiencies. But what if these issues in part reflect businesses’ reactions to the higher minimum wages that the report celebrates?

Jeffrey Clemens, an American economist, has shown that companies often adapt to higher minimum wages not just by laying off workers or raising prices, but through various other cost-saving strategies. These include limiting new hiring, slashing non-cash perks, reducing workplace comforts, enforcing stricter performance monitoring, or more rigidly managing workers’ hours and schedules.

While these adjustments help to mitigate rising wage costs, they can make jobs less pleasant, stable, or lucrative for employees. In other words, as the minimum wage increases, employers often take actions that reduce the perceived quality of jobs. This can make the roles less satisfying than rising hourly pay might suggest.

There’s growing evidence that these effects are substantial. Researchers at the London School of Economics discovered, for example, that zero-hours contracts, which offer no guaranteed work hours, surged in low-wage sectors, particularly social care, after the higher national living wage was introduced in 2016. Similarly, in the US, studies indicate an increase in unpaid internships and contract clauses limiting employees’ job options, correlating with minimum wage rises.

Frontier Economics, a consultancy firm, found that the UK introduction of the higher national living wage led to slower job growth in low-paid industries. This can increase stresses on existing employees as businesses expand. Especially in agriculture and warehouses, there’s been a noticeable trend of managers more closely monitoring and squeezing workers harder.

Research by the Low Pay Commission has revealed that in response to the national living wage, 20 per cent of businesses cut free amenities, staff discounts, or break times. Other companies trimmed overtime pay and training provision. The latter can limit employees’ future career prospects, further dampening their satisfaction with their roles.

These findings help to make sense of the bigger picture. There’s little to no evidence that the recent minimum wage increases we’ve seen to 65 per cent of median pay (from only 46 per cent in 1999) have boosted productivity. The lack of widespread layoffs must therefore logically be due to some combination of higher prices, employers evading the law, and firms making these adjustments to job quality.

Does the benefit of higher hourly wages justify these costs? Many will say yes, but it would be useful if we all acknowledged the trade-offs. If compromised job quality helped to avoid unemployment as minimum wages have risen, then new workers’ “rights” on scheduling and minimum hours would probably backfire, unintentionally causing job losses. This concern is amplified by the Resolution Foundation’s additional call for further increases to a £14 an hour minimum wage by 2029 — a rate that would be the highest relative to median pay among all advanced economies.