pounds 4.15 an hour - good money for accountants
Alec Reed looks at the practicalities of introducing a minimum wage
Wednesday 01 November 1995
Employers are confused: would a minimum wage include fringe benefits such as statutory sick pay and maternity pay, three weeks' paid holiday and redundancy benefits? Temporary workers do not enjoy such benefits at the moment: presumably, their pay would be governed by the minimum wage, but would that include the additional perks? The implications to employers are huge.
The cost of living varies tremendously from region to region. A minimum wage would not. So the benefits to workers in a low-cost place such as Middlesbrough, for example, would be far greater than the benefits to those living in London. To benefit all low-paid workers everywhere equally, a minimum wage would really need to be weighted, and working out these weightings would be a complicated task.
A minimum wage is supposed to represent the minimum on which a person could be expected to maintain a decent standard of living. Let us assume that it should be set at pounds 4.15 an hour. Someone on this wage working 40 hours a week could, under the present system, pay around 13.5 per cent of his or her earnings in income tax and take-home pay would be pounds 3.59 an hour. There are two points here. The first is that by setting a minimum wage, a government would earn greater revenues from income tax. But it is employers who would foot the bill. If a government wanted to ensure simply that people took home pounds 3.59 an hour, it should set an untaxed sum of pounds 3.59. The second point is that while a full-time worker would take home pounds 3.59 an hour, a student working part-time (or a foreigner working part of the year) and paying no tax would get the full pounds 4.15. There is clearly a problem here; a minimum wage should not be taxed.
That in itself would create another problem. In many companies there is a strict hierarchy based on wage differentials. The introduction of a minimum wage would throw this into confusion. Opponents to the minimum wage bemoan the cost of raising the wages of those who are paid less than the level at which the minimum is set.
But this is only half of it. To continue with the hypothesis that the minimum is set at pounds 4.15 an hour, what would be the reaction of somebody already earning that? Suddenly, he would find himself at the bottom of the wage pile, earning the same as the least experienced people in the company. An important psychological structure has been removed and the worker would understandably demand higher wages, perhaps another pound an hour. Then the company would face demands from workers on pounds 5.15 an hour. The effects would diminish further up the pay scale but it would be costly to maintain the hierarchy. Again, taxation of low-income levels would be called into question.
To complicate matters further, where the minimum wage exceeds the market wage, a gap would be created. This would soon be filled by workers in the black economy who, while they were forced to go without basic employment rights, would avoid paying income tax and National Insurance. Many would continue to claim unemployment benefit and the - potentially enormous - costs would be met by taxpayers.
Would it lead to an increase in unemployment or not? That debate will continue until someone actually gives it a go. The labour market is so diverse, and so fraught with anomaly, that the introduction of a minimum wage is not simply a question of whether unemployment will rise or fall.
What can be certain is that it would keep accountants busy: a minimum wage would have to be accompanied by a dramatic change in the income-tax system at lower levels. The many practical obstacles are surmountable: if the wage is set at a modest level and gently tweaked upwards, it would work, but the unions will have to exercise patience.
The writer is chairman of Reed Personnel Services and Professor of Innovation at Royal Holloway College, London University.
- 1 Howard Jacobson: Let's see the 'criticism' of Israel for what it really is
- 3 Belgium fan Axelle Despiegelaere lands L'Oreal campaign after World Cup viral photo
- 4 Britney Spears sings 'Alien' without Auto-Tune in embarrassing leaked audio clip
- 5 PornHub begs users to stop uploading video clips of Brazil getting beaten 7-1
Sustained immigration has not harmed Britons' employment, say government advisers
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
Socialist Worker called to apologise over ‘vile’ article saying Eton schoolboy Horatio Chapple's death is ‘reason to save the polar bears’
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£12 - £15 per hour: Cameron Kennedy Recruitment: Excellent opportunity to join...
£400 per hour: Orgtel: Technical Business Analyst - Banking - Bristol - £400pd...
£38000 - £42000 per annum + competitive: Real Staffing: Required skills:Previo...
£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...
Day In a Page
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay