Minimum wage is a step in the right direction

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The Independent Online
IT TOOK a long time coming but Britain, it seems, is at last about to move into the 20th century and adopt a statutory minimum wage. In doing so, this island of ours will join the majority of its industrialised trading partners and a number of other countries too in drawing a line under the level of exploitation socially and legally permissible.

Not that statutory minimum wages are the domain only of rich nations. Uruguay has one, as does Mexico and most of the former communist countries including Poland and Romania, according to the Geneva-based International Labour Organisation. Nor is it an exclusive indulgence of countries with rigid labour laws such as France and Germany. The US has had a statutory minimum wage for decades.

Of course, the introduction of the minimum wage won't put an end to unscrupulous employers who will try anything to keep wages down. One of the reasons countries such as Italy and Belgium have such a large "unofficial" economy is because of their rigorously enforced minimum wage; employ someone off the books and you can pay them what you like. But it will help.

The level recommended this week by the Low Pay Commission, pounds 3.60 an hour, may seem low for those at the bottom of the pay scale but it compares reasonably with our European neighbours such as France, where the level is pounds 3.75 and the Netherlands (pounds 3.96). The trade unions are quite right to bemoan the amount, especially as it is unlikely to apply to workers under 21; pounds 3 60, the price of two cafe lattes and a shortbread biscuit for those in higher income brackets who work near one of those new swanky coffee bars, is hardly a fair return for an hour's sweat. But at least it is a start.

When the level of minimum wage that the Low Pay Commission is to recommend was leaked to the press last week you could almost hear the sigh of relief in the boardrooms of Britain. Sir Colin Marshall, the chairman of the Confederation of British Industry, was quick to declare the commission's recommendation "acceptable." Even McDonald's, the hamburger multinational and one of the biggest companies still to pay some of its staff pounds 3.50 per hour in the provinces for the starting salary, said it welcomed the principle of a minimum wage. Only the right-wing Institute of Directors warned of possible job losses in certain industries as a result of the minimum wage. There were a few articles in newspapers about textile companies threatening to leave Britain and go elsewhere because they would no longer be able to pay their wage bills here. But as the textile industry has practically disappeared from this country without the minimum wage, the cries of the owners do seem a little empty.

As do the dire warnings from the Conservative Party prior to the last election that the minimum wage would lead to thousands of job losses. Like the EU's 48-hour week working-time directive so bitterly opposed by the last government, the objections are more ideologically than economically based. For sure, in those sectors that rely on cheap labour, such as the textile, retail, catering and tourism industries, companies will feel the pinch. An estimated 2 million people in this country are earning less than pounds 3.60 per hour. If all of them received an extra 50p an hour for a 40-hour week 48 weeks a year, that would constitute a pay rise of about pounds 900 a year each. But that doesn't necessarily spell disaster. Some economists believe that a minimum wage may even create employment because it might spur companies to improve productivity in order to be able to foot their wage bills.

In perhaps another indication of how little impact the minimum wage will have on the workings of the economy, the City has also been deafeningly silent on the issue. None of the pile of research reports that the various banks and securities houses sent out last week has even mentioned the minimum wage.

The only institution to have raised a serious question mark about the issue is the Bank of England. In its May inflation report it said the implementation of a minimum wage would be of "crucial importance" to inflation levels, adding approximately 0.5 to 0.75 of a percentage point to annual earnings growth - therefore lessening the chances of interest rate decreases. Indeed, the wage bill will rise by at least pounds 2.3bn a year if each one of the two million workers on less than pounds 3.60 an hour receive a 50p an hour pay rise for a 40-hour week for 48 weeks a year. But that's only just half the amount of City bonuses paid out last year and they only benefited a few thousand people. Building societies injected pounds 33bn into the economy with their windfall payments on flotation last year. If, by the introduction of a minimum wage some of the worst excesses of exploitation in the labour market will disappear, a small rise in the inflation rate seems a small price to pay.