Would a statutory minimum wage help to eradicate low pay? Jack O'Sullivan weighs the evidence
Wednesday 20 September 1995
The best that the fast-food worker should hope for is that a future Labour government would outlaw, as the TUC demands, the practice of "zero hours" contracts.
The trade unions would like Labour to be more generous. They have pressed for a minimum based on "half male median earnings". There is much debate about what this sum actually amounts to: union estimates range between pounds 3.60 and pounds 4.15 a hour. The TUC will probably finalise its calculation next spring and, in an effort not to embarrass Tony Blair, is likely to ask for a figure closer to pounds 3.60 than pounds 4.15.
Mr Blair refuses to commit himself to a particular level this side of a general election. But he has promised that a Labour government would establish a Low Pay Commission which would take evidence from the unions and employers before setting a rate. In this task, he would want to take into account the effect on jobs.
This is an issue of hot debate. The law of supply and demand suggests that when wages rates rise, workers become less affordable and so jobs are put at risk. But there is evidence that some labour markets are uncompetitive because employers are dominant in their locality or collude with other employers. They may well, therefore, be able to afford higher wages without being forced to throw people out of work.
In the United States, the minimum wage was increased to $4.25 per hour in April 1991. Until April 1990 it had stood unchanged at $3.35 for 10 years. Most studies indicate that the level has been kept low enough not to damage the availability of jobs. Indeed, research into the fast-food industry in the state of New Jersey (which increased its minimum wage to $5.05 in 1992)found that employment rose in the lowest-paying firms, even though the state was going through a recession at the time.
Mr Blair, an admirer of Robert Reich, the US Labor Secretary, will need to weigh this evidence against experience in Europe. Belgium has the highest minimum, at pounds 5.68 per hour, while France guarantees pounds 4.79 per hour. Both have unemployment rates considerably higher than in Britain. The OECD Jobs Study has warned that a high level "will seriously reduce employment prospects for certain groups", in particular young people.
British employers say they could live with a rate of pounds 3 an hour or less. They would prefer not to have a minimum wage, calling for changes in social security to help low-paid workers. But even they acknowledge, according to a CBI survey, that this low figure would not create a jobs shake-out. Mindful of the costs to the Treasury of raising the wages of low-paid public sector workers, Labour is, therefore, expected to opt for a rate which is not much higher than Burger King's pounds 3.10 a hour.
Obviously, a level above pounds 4 would have a greater impact on the lives of low-paid workers. Large numbers of male full-time manual workers in agriculture (20 per cent) and clothing (36 per cent) earn less than that. The figure is worse for women: well over half of female full-time manual workers in agriculture, textiles, footwear and clothing are paid less than pounds 4. More than 80 per cent of waitresses and 74 per cent of hairdressers would be better off with a pounds 4 minimum.
A figure around pounds 3 could, nevertheless, have a considerable impact on large numbers of workers. The CBI estimates that 750,000 people, two-thirds of them part-timers, earn less than this amount. At last week's TUC conference Margaret Prosser, an official of the Transport and General Workers' Union and chair of the TUC women's committee, said that many part-time workers were now employed in "modern-day workhouses" earning as little as pounds 1.50 an hour in the twilight world of private nursing homes and "seedy sweatshops".
But, in effect, the national minimum wage currently envisaged by the Labour leadership is not much more ambitious than the old wages councils, created in 1909 by Winston Churchill to set minimum wage levels for 2.4 million workers, mostly in service industries. Under this arrangement, employers and unions met, supported by a government secretariat, and recommended a minimum pay level, which then became legally enforceable.
When most wages councils were abolished in 1993, their rates were already between pounds 2.90 and pounds 3.15. But their requirements were frequently ignored. Research showed, for example, that more than half of pub part-time staff were paid less than the statutory minimum. So Labour's plan for a national minimum wage would be a step forward only if the change was rigorously policed. Despite all the political rhetoric, it seems that Burger King has little to fear, and its employees little to gain, from Tony Blair.
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