Tuesday, 2 April 2013

Next up: the minimum wage

Unlike our report on electoral reform yesterday, this is no joke. The government’s Department of Business, Innovation and Skills (which I seem to recall has two Liberal Democrat ministers in it) is worried the minimum wage may be too high.

Well, let’s have a look at the minimum wage. The rate for people aged 21 or over is currently £6.19 per hour. Does that sound too high to you? How would you know? You are probably middle class and think in terms of an annual salary, so let’s convert it into terms you will understand. Assuming a 40-hour week and paid holidays, £6.19 X 40 X 52 = £12,875. For people aged 18 to 20, the minimum wage is £4.98 per hour. £4.98 X 40 X 52 = £10,358. But these annual amounts are a best-case scenario since, for many low-paid people, work is often casual and holidays not always paid.

There is an argument that the minimum wage harms the economy and here is Jo Swinson (who ought to know better) making it:
Employment minister Jo Swinson said in February: “The level of employment is now above its pre-recession peak, but the employment rate is below the pre-recession peak.
“This means that we believe that caution is required – particularly as the minimum wage rate is now at its highest ever level relative to average earnings for adults, and remains high for young people.”
She is motivated by a fear that the minimum wage acts as a disincentive to job creation, but that is only the case if your job creation strategy is a race to the bottom on wages. Taken to its logical extreme, the government could eliminate unemployment tomorrow if it eliminated pay altogether.

Meanwhile, depressing pay levels can only harm the economy. First, low-paid people must spend what they have – they don’t have a surplus to save – so their income goes straight into the local economy to buy goods and services, which helps the economy. Second, the lower pay levels are, the more the government has to subsidise stingy employers in the form of Income Support. Leaving aside the arguments about unemployment benefits, surely anyone in full-time work should be paid enough to live on?

But then these arguments will cut little ice with those for whom austerity is more of a religion than a rational policy.

Postscript: The Living Wage Foundation has calculated the living wage for both London and the rest of the UK. For London, it is £8.55 per hour and for the rest of the UK £7.45. Converted to annual salary equivalents, that is (£8.55 X 40 X 52 =) £17,784 and (£7.45 X 40 X 52 =) £15,496 respectively, in both cases more than the statutory minimum wage. So, Jo Swinson, still worried that the minimum wage is “high”?

1 comment:

  1. Presumably Jo Swinson would be very happy to live on £12,875, if she thinks it's already too high?

    Too high for who exactly? It's better jobs that we can live on being created, rather than trying to employ people for a £5000 annual salary, having them live in poverty, taking out high interest rate debts, and then having less money to buy things in the general economy.

    I don't see any evidence that minimum wages reduce available jobs - are there any studies at all showing this?


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