Commission on Social Justice: Minimum wage warning for Labour as party urged to adopt student loans: Work

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Reinstate goal of 'full employment'.

Minimum wage, with lower rate for the young.

Subsidise wages to help the long-term unemployed find work.

Oppose 'workfare'.

National tripartite discussions on pay.

Pressure for shorter working hours.

The commission supported Labour's controversial advocacy of a national minimum wage, but warned that setting it as high as some trade unions wanted would risk destroying jobs.

The commission argued that it was wrong that adults should be working for pounds 1 or pounds 2 an hour, even if they wanted to. It said a minimum wage would stop taxpayers having to subsidise low-paying employers through the benefit system.

A minimum wage of pounds 3.50 an hour would boost the government's finances by pounds 1.3- pounds 1.6bn a year, the report argued, by boosting tax revenue and cutting spending on benefits.

It added that a minimum wage at this level would not threaten jobs, implying that the pounds 4.05 proposed by some trade unions could be too high. The commission said the minimum wage should be about a third lower for 16- and 17-year- olds, but should not be varied according to different economic conditions in different parts of the country, as was proposed at the Liberal Democrats' conference this year.

Sir Gordon Borrie, the commission's chairman, said: 'We have taken the slogan of full employment and given it substance.' The report defined full employment ambitiously as a situation in which there were no more people unemployed than there were vacancies to be filled. At present this would mean a target of about 500,000 people unemployed, well below the level at which most economists believe inflation would start to accelerate.

The commission supported proposals for getting the unemployed into low-paid work by subsidising their wages. The Government has already launched a pilot scheme and is thought to be considering further moves in this direction.

The commission said employers could be offered a month's free trial of an employee, who would still be paid benefits. Or an employer taking on a long-term unemployed person could be given a holiday from National Insurance contributions. The long- term unemployed could also swap all or part of their benefits for a voucher with which to attract potential employers.

The problem with all these schemes is their potential wastefulness. They may 'create' jobs which would be offered anyway, while people already in work could be displaced by subsidised replacements. The commission was not clear on how effectively this could be prevented.

It said that getting long-term unemployment down might increase the number of people unemployed for short periods, but argued that this was a price worth paying.

Proposals for 'workfare', under which people would lose their entitlement to benefits if they refused to accept offers of work or training, were rejected: 'If young people are offered the choice between workfare or inadequate training and the loss of their benefits, they will reject both workfare and benefits and choose a third way - the cash- and-crime economy.'

There might be a case for offering the long-term unemployed guaranteed jobs in the public sector as a last resort, but this would have to involve training and regular contacts with private sector employers.

The commission proposed an Australian-style Jobs, Employment and Training programme. As well as wage subsidies, this would include better advice services for the jobless, improved training, help for people starting their own businesses, more childcare help and support for 'intermediate labour markets' in which training and employment are combined.

All these could prove expensive and experience of similar schemes suggests that their impact would be difficult to assess.

Companies might also be forced to offer voluntary cuts in working hours to employees whom they intended to make redundant.

But this could deter employers from taking on extra employees in the first place, because it would be difficult to get rid of them later.

The commission also offered general prescriptions for the better management of the economy to boost job creation. It recommended a consultative body of unions and employers to discuss the average level of pay increase which the economy could sustain.

This idea has been proposed many times, but critics argue that neither firms nor employees are willing or able to act in a co-ordinated fashion.

The commission also favoured synchronized pay bargaining, although this could politicise the bargaining process and do more harm than good.