Minimum wage, more poverty

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The Independent Online
Contrary to the myths put about by advocates of a statutory minimum wage, who will be particularly vocal in today's debate at the TUC conference, Britain does not have a low-wage economy, nor have lower-paid people in this country done badly in recent years. Allowing for the cost of living, the take-home pay of British industrial workers is among the highest in the European Union.

"Low pay" and "poverty" are commonly misused as if they were synonymous. In fact there is surprisingly little connection between low pay and poverty. The 1992-93 Family Expenditure Survey shows that most lower-paid workers live in middle-income households with only a small proportion living in households with the lowest incomes. Just 6 per cent of full-time workers in the bottom tenth of earnings live in the poorest 10 per cent of households.

For lower-paid workers with families there are now in-work benefits such as Family Credit which are designed to leave people better off in employment than unemployed. A new benefit, Earnings Top-Up, will be piloted next autumn for single people and childless couples. Research shows that in practice statutory minimum wages destroy jobs. A minimum wage set at pounds 4.15 per hour - one of the figures talked about by trades unions - would destroy 950,000 jobs; and that's based on the assumption that just half of the pay differentials are restored. If more than half-restoration of differentials took place, total job losses would be much higher. And the real cause of poverty is not low pay - it's unemployment.

Job losses from a minimum wage would hit the most vulnerable: the young, the low skilled, the disabled. The OECD Jobs Study reviewed the evidence on minimum wages in other countries and commented: "The cost of minimum wages, in terms of lost employment, falls disproportionately on young people."

Minimum wage proponents argue that there is a level for the minimum wage that can help the lower-paid while having no damaging employment consequences. But either the minimum wage is so low that it helps only a small number of people - by a very small amount - or it will destroy many jobs. If a minimum wage is to have "bite" it will bite both the wages and the jobs of the lower-paid.

As is usual with artificial regulation, some people would find ways round a minimum wage if they wanted to. For example, employers may remove fringe benefits or stop paying extra for overtime. Ultimately employers will set up their businesses in countries with lower labour costs if it becomes uneconomic to employ people at the minimum wage.

When you look at the evidence it is clear that a national minimum wage would destroy jobs, raise inflation and increase poverty.

The writer is President of the Board of Trade.