The Labour Party in Blackpool: Estimate of job losses 'arbitrary': Low minimum wage may have no adverse effect on the labour market. Barrie Clement reports

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The Independent Online
BRITAIN is about to become the only country in the European Union without any sort of minimum wage. Ministers have indicated that the Agricultural Wages Board, which imposes a lower limit on farm workers' pay, will follow wages councils into oblivion.

The Government's principal argument is simply that statutory minimum rates cost jobs. Michael Portillo, Secretary of State for Employment, is convinced that small businesses, in particular, would be forced to close if a Labour government carried through its policy.

The argument is based on simple neo-classical economics which asserts that if the price of labour increases, the demand for it will decline. Ministers claim that if Labour's proposals were enacted, 2 million people would lose their jobs. They cite the French example where the policy has given rise to concerns about youth unemployment.

Apart from the pay rise for those at the bottom of the scale, Conservatives contend that a knock-on effect would be felt by those on higher wages, who would insist that their 'differentials' should be maintained.

A second contention is that minimum rates are by their nature inflationary and therefore damaging to the economy.

However, most research contradicts those conclusions and an internal Treasury document, cited by the Low Pay Unit, says that the ministerial estimate of job losses 'is entirely arbitrary and has no empirical basis'.

Studies on wages councils in Britain, which covered 2 million workers when they were abolished a year ago, found little effect on employment or on prices.

A statutory system in the United States, introduced in the wake of the Depression of the 1930s, was also found to have no negative impact, although the present rates are relatively low.

Robert Reich, US Secretary of State for Labor, said last week that minimum rates in America could be raised to dollars 3.50 ( pounds 2.25) from the present dollars 2.70 ( pounds 1.75) an hour with no negative impact on employment.

Although all EU countries have some legally enforced minimum wage mechanism, not all are set centrally by government. In Germany, the collective bargaining process sets the rates, which are then legally binding. The state decides the level in Spain, Portugal, France, Belgium, Greece, Luxembourg and the Netherlands. In most European countries the rate stands at two-thirds average earnings, which would give a figure of pounds 5.53 an hour in Britain.

That compares with the pounds 4.15 being sought by British unions, which would benefit 4 million people, according to the Low Pay Unit. About 70 per cent of those covered are women, many of them working part-time.

The European 'decency threshold', which stands at 68 per cent of average earnings of men and women, gives a figure of pounds 5.87 an hour in the UK.

Clearly if the minimum is set too high, jobs would be destroyed, but the Centre for Economic Performance at the London School of Economics argues that the pounds 4.15 figure sought by unions 'should not have any harmful effects'. The LSE concludes: 'Existing evidence on minimum wages suggests that they reduce wage inequality, may alleviate poverty and have very little impact on employment and unemployment.'

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