Leading article: Tipping the scales in favour of the weakest in the workforce

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The Independent Culture
THE ARGUMENT in the Government about the national minimum wage was bound to be reported in personal terms. It does, however, matter to the prospects for Tony Blair's administration that he and Gordon Brown have fallen out with Margaret Beckett. It also matters that there are strong currents of ideology, passion and history running through the Labour Party and the trade unions in favour of the minimum wage. But what matters above all is getting the policy right.

The first point to establish is that a minimum wage is right in principle. It is important, though, to be clear about precisely which principle this is. A minimum wage is not a human right, for all the emotive rhetoric of Rodney Bickerstaffe, the Unison leader. It is one instrument among many of social justice.

If it is set too high, especially for younger workers, it will put people out of work, and there is no social justice in that. But, if it is set at the right level and applied to the right groups of people, it has a number of benefits.

It prevents, as Winston Churchill famously argued, employers competing against each other by undercutting each other's wages, and forces them to focus on the genuine competitive gains from higher productivity. By reducing staff turnover, it makes those productivity gains more likely. It reinforces the Government's attempts to ensure that work pays, by increasing the incentive to get a job rather than claim benefit. And it has the effect of increasing the spending power of the poorest, which can boost local economies in the most deprived areas.

Of course, any free-market zealot can point out that, if employers have to pay more for something (that is, labour), they will buy less of it, causing unemployment. But that is too simplistic, assuming that there is something approaching a perfectly free market in labour. There is not. The market is distorted by all manner of cultural attitudes, legal restrictions and unequal information. A minor rebalancing of market forces in favour of the weakest employees is hardly going to blunt the competitive edge of modern capitalism.

The all-important question, then, is a technical one, concerning the level and coverage of the minimum wage. The level cannot be determined by an arbitrary formula - the unions' adherence to half of median male earnings, currently worth pounds 4.60 an hour, is theology rather than economics: theology dressed up in statistical mumbo-jumbo. The level has to be an empirical judgement based on the evidence of the likely impact on jobs.

There may have been a case for erring on the side of caution by knocking 10p off the Low Pay Commission's recommendation of pounds 3.60 an hour (the US minimum wage, for example, is equivalent to pounds 3.10 an hour at current exchange rates). But the important debate was the one which did in fact split the Government: how to deal with younger workers.

Mr Blair and Mr Brown have been accused by the TUC of watering down the Commission's proposals in order to score anti-union propaganda points at Mrs Beckett's expense. On the contrary, they seem genuinely concerned with getting the policy right.

All the evidence is that setting an adult minimum wage for young people destroys jobs - the OECD published an emphatic study last month. There is no need for a separate minimum wage for young people, and it would be simpler just to have one, adult rate. Young people up to the age of 21 - or preferably 24, at least until the impact can be assessed - should simply be exempt. That might have been a bridge too far for the Labour Party and the unions, in which case the Prime Minister and the Chancellor should be praised for doing what they can to soften the Low Pay Commission's plan.

If it turns out, after next April, that they were too cautious, that can be corrected later. In the meantime, there is no excuse for taking risks with young people's job prospects.