Magazine article Management Today

Would Minimum Wage Do More Harm Than Good?

Magazine article Management Today

Would Minimum Wage Do More Harm Than Good?

Article excerpt

One thing is virtually certain: Tony Blair's new business-friendly Labour Party, when and if it comes to power, will seek to introduce a national minimum wage (NMW). Labour claims that a minimum wage is required as a matter of social justice, to reduce poverty. The business community, by and large, remains to be convinced that it will have any discernible impact in this area, since the poor are often not members of the workforce. And many businessmen strongly suspect that, by increasing labour costs, an NMW will adversely affect both employment and competitiveness.

`An NMW weakens the link between performance and pay by granting large increases unjustified by productivity. It would certainly lead to powerful inflationary pressures,' comments the Confederation of British Industry. The price of labour should be no more regulated than the price of other factors of production.the concept of a minimum wage has no validity a market economy,' insists the institute of Directors. Its evident that a high proportion of senior managers implicitly accept the neo-classical economic arguments, and a lot of them find the subject unworthy of discussion.

Economists are themselves deeply divided on this issue, as on so many things. But given the prospect of a general election - and a possible Labour victory - the focus will shift rapidly from argument about the principle of an NMW to the actual assumptions and arithmetic. According to Paul Gregg at the National institute of Economic and Social Research@ `The action will be on setting a rate.'

Labour's economic policy committee has yet to decide on the details, although Blair has reiterated that care must be taken to avoid any adverse impact on the job market. Last September the Trades Union Congress voted for an initial target of half male median earnings, rising later to two-thirds of average earnings. Under this formula and under present conditions, according to researchers at the Transport and General Workers Union, the NMW would be set at 4.15[pounds] an hour from day one. However the TUC's spokesman is careful to add that such details as the basic working week, and the treatment of holidays and overtime earnings, would be wide open for discussion.

The CBI calculates that an NMW of around 4. …

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