Browsing Twitter this morning, two of my followers tweeted this link: here. I’d like to just go through it outlining why I think Dr Eamonn Butler is so wrong on this occasion, hopefully without getting too vitriolic, but you never know.
“I want to see the pay and conditions improve for the lowest-paid workers… But it is now obvious that the minimum wage is keeping out of work those – like younger people, unskilled workers, women and ethnic minorities – who need job opportunities the most.”
Really? You want to see pay improve AND scrap the minimum wage? As I understand it, the minimum wage was set up precisely to improve pay… how is it possible that scrapping it would be a Good Thing? The difference between £3.50 an hour to £5.25 is nothing to be scoffed at. And speaking as a young, unskilled female ethnic minority, you sound rather patronising.
“Of course, there is an economic downturn, so jobs are harder to get and unemployment is higher. But where is it highest? Yes, precisely among these groups.”
Excuse me if I’m being crass, but hasn’t unemployment always been highest among young, unskilled female ethnic minorities? How will scrapping the minimum wage change this?
“They (trade unions) wanted to elevate the entire wage scale by raising the wages of their lowest paid members.”
I think there’s a big difference between elevating the wage scale, and narrowing the pay gap. Just because you start paying your cleaner an extra £2 an hour, it does not follow that you have to increase the significantly higher salary of your CEO in line with this. Those bastard trade unions, doing what they can to improve the standard of living for workers.
“We can devise any number of costly New Deal programmes to help train up those who have few work skills. But where can you get the best possible training for a job? Yes, in a job.”
So what you’re saying is that employers can’t afford to employ people at the measly sum set by minimum wage, therefore lowering the minimum wage would mean that at least people who really wanted to work can do so for a few pennies. Right?
Wrong. What you’d end up with is a lot of people working AND claiming benefits to make up the difference. In South London, where I live, to qualify for income support and housing benefits, you have to be on £16k a year. Is that a good thing? Yes, more people are getting experience, but the government is still having to subsidise it. Surely it’s better all round to close the pay gap, than ignore it completely? Also, it’s putting rather a lot of trust in employers to employ more people at whatever rate they can get away with, rather than just valuing a fellow human being by ensuring that they can afford to feed themselves and, heaven forbid, keep a roof over their head.
Minimum wage is just over £10k (depending on your age and location I think). Try living on less than this after tax. Go on, I dare you.
“So what you’re saying is that employers can’t afford to employ people at the measly sum set by minimum wage, therefore lowering the minimum wage would mean that at least people who really wanted to work can do so for a few pennies. Right?”
No. What we’re saying is that if the (lack of) skills an unemployed person brings to the job is not worth the minimum wage rate, then a rational employer will do without that person’s labour.
The unemployed person will not get experience, or a reference or any opportunity for skills development or acquisition.
If you fancy a piece of gum and there is a minimum price of £10 for a single piece of gum, you might quite rationally decide to buy a large packet of sweets for £10 instead. It’s quite not the same as some gum, but you reckon it’s a better way of spending your money and gives you better value.
It doesn’t matter whether you can afford the gum or not. Artificially inflated prices make you behave differently.
That’s nice and tidy on paper, but I think in practice it’s a different story. If you’re given the choice between staying on welfare, looking for work that pays a living wage versus going to work 8 hours a day for precious little more than the experience, I’m not sure people will be falling over themselves to get a job.
Just read this article over on A42 that I found quite interesting: http://theanswers42.blogspot.com/2010/06/therell-never-be-enough-jobs_30.html I like the suggestions for practical things we could do wrt sustainable employment (though I’m not sure too many people will agree)
The thing that concerns me most about ideas like scrapping minimum wage is that it penalises those who are already struggling to make ends meet, without taking any reparations from the top. I’m more for closing the salary gap by spreading profits across the board, not undercutting staff.
Thanks for commenting Obo. I didn’t even call you a cunt yet, honoured to have caught your attention.
Cx
Part of the problem is the insanely complex welfare legislation. If benefits were not means tested and subject to so many hoops (and obviously set at absolutely much lower levels) and the LEL for NI & Income Tax was set at whatever you called the minimum wage, then there would be a huge incentive for people to work, because everything between the benefit and the LEL would be tax free.
Your idea of “closing the salary gap by spreading profits across the board” may sound attractive on paper, but in reality, people would not be able to raise capital as people would not be willing to invest their savings into a business that didn’t strive to maximise profits. Spreading profits also reduces the urge of the entrepreneur to start the business in the first place.
Without capital or people willing to invest in it, most businesses would simply not exist.
Brilliantly put. It is just what I have been trying to convince people about. If people were paid a living salary to begin with they wouldn’t need the top up from the state. Our taxes should NOT be used to subsidise greedy corporations who refuse to pay their employees according to the cost of living. It is not what the benefit system was designed to do.
What she said \m/
Thanks
Cx
I warn you know, this is long and very, very ranty.
The issue of NEETS is one that will only be exacerbated by the current coalition as funding for further education and higher education plummet and the unfit for purpose current system of applications for university places exists. Frankly, why universities are fined for over subscribing, I cannot fathom. If the cap on places was taken away you would see little difference as universities wouldn’t dare try to over subscribe and reduce the student premium, the National Student Survey and NUS would see that the university be torn apart. Considering that 2 universities have almost closed due to fines for over-subscription is abhorrent. But this is a different matter entirely.
The only way to fix the problem is education. An integrated system which does not exist yet is greatly needed, although one could argue this looked more likely in the tail end of the Labour election campaign when rumours of the 50% HE target was to be removed and replaced with a much more sensible 75% tertiary education target should they have continued in government. If you increase the education of populations then you increase likelihood of social mobility. Problem is Labour got the basic theory right but fucked up royally on the execution and thought they knew better than the people who were actually doing the work (which I have heard a former Labour Education Secretary admit to at a debate on this subject).
On the point of a living wage, I know Ed Milliband has put this as one of his policy points in the Labour leadership election (I think Ed Balls also backs this) and I must say that I agree with it as does, it may surprise you (it bloody well surprised me), Boris Johnson…but only for London, obviously!
Even if the cost of labour rises, which it would with a living wage, you are unlikely to see employers in many areas risk the job for purely cost reasons as Obnoxio says. Whilst financial cost is a consideration, there are opportunity costs and other management perspectives that need to be considered, not least workload and time management and quality management systems. Just looking at financial costs, whilst true, is a 2 dimensional and inefficient method of evaluating the worth of a role in a company and widely criticised by a lot of modern business theory and specific research conducted on this subject.
Which brings me to where Dr Eamonn Butler has gone wrong and the Adam Smith institute regularly go wrong in my opinion. They are a right wing thing tank who are known for these poorly-researched, sensationalist, headline-grabbing statements. Look at the “article” in question and you will see that there is no research at all. This is just an, admittedly qualified but plainly ideologically biased, academic (in the loosest sense) thinking out loud-sadly for all the world to see.
Had Dr Butler conducted even the lightest touch of research, he would address Card and Krueger’s 1994 article, which appeared to prove that minimum wage did not reduce the number of jobs in New Jersey (in fact a minimum wage increase also saw an increase in jobs compared to Pennsylvania which had a static minimum wage and similar economic conditions). They followed this up with a 1995 book which had a wider scope, (http://www.amazon.com/Myth-Measurement-David-Card/dp/0691048231/ref=sr_1_1?s=books&ie=UTF8&qid=1282598136&sr=1-1) which argued that minimum wage introductions and increases and a minimal to non-existent relationship with job creation.
Whilst I respect the criticisms laid against Card and Krueger, the arguments I have seen appear to be based on ideology (or, to quote Deere, Murphy and Welch “common sense and past research”; research which they don’t explicitly point to.) I accept that Neumark & Wascher’s 2008 book was a much more scientifically grounded criticism; however there is an argument that the methodology used was flawed. This argument is strengthened by a similar 2008 study by Doucouliagos & Stanley, which concludes “little or no evidence of a negative association between minimum wages and employment remains.”
In conclusion, I would say be wary of this report but-more so-be worried by the government minister (I have a sneaking suspicion it was David Willetts) who mentioned that evidence-based research was over used in government decision making. This concerns me that the government may give credence to these ideological, Milton Friedman loving think tanks run by people who are sealed in their own little bubble away from the world (Dr Butler has worked full-time at the Adam Smith Institute with no academic nor professional post alongside it since, it appears, 1977). I would argue that, unless they can provide research to the contrary which expands on the disputed work of Neumark & Wascher, anyone arguing for the scrapping of minimum wage is doing so for ideological and not factual reasons.
Another report will be coming out tomorrow from Civitas http://www.civitas.org.uk/ which is just as bad, just as flawed and just as useless with respect to vocational education. I’d wait for that and sharpen your knives or do as I will, just ignore it and hope the lunatics aren’t given a chance to run the asylum by our fair coalition government.
“An integrated system which does not exist yet is greatly needed”
Central planning of anything has never worked in the past, why do you think British civil servants could get this right now?
Also, Goodhart’s Law.
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