Paying a High Price for Minimum Wage; ECONOMIC ANALYSIS

The Mail on Sunday (London, England), August 4, 1996 | Go to article overview

Paying a High Price for Minimum Wage; ECONOMIC ANALYSIS


Byline: SARAH HOGG

New Labour is digging a damaging hole for itself in the run-up to the General Election, says SARAH HOGG, a director of London Economics

A RASH of transport strikes this summer has dashed New Labour's hopes that trade unions had disappeared from the political agenda.

As the buckets and spades are packed away and the political knives are taken out again in September, another issue will expose Tony Blair to crossfire from his own Left wing, who suspect him of selling out on industrial relations, and from the Tories, keen to show that he hasn't sold out far enough.

With the Trades Union Congress, we will be hearing a lot more about the minimum wage.

Today's BBC Thinktank programme explores every conceivable (and inconceivable) argument for this policy. But since I was told, when I was asked to take part in this series, that the intention was to explore the issues beneath the party fray, I took all of them seriously.

After all, those who support a minimum wage can produce grim examples of sweatshop workers, usually without explaining why such people are not on social security.

They can also point to minimum wages in other industrialised countries, including free-enterprise America, usually without saying that sectors of the economy where there are many low-paid employees tend to be excluded.

They argue that people should not be expected to live on low wages. This is true and it is why we have a benefits system that reflects individual circumstances, family size, housing costs and responsibilities in a way that employers cannot be expected to do when working out the rate for the job.

Of course, it sounds good to say that everyone should earn at least so much an hour. It is the sort of thing politicians like saying and people like hearing, although some unease in Labour minds is clear from the fact that, in this election campaign, they want to leave a big hole and not say how much.

The problem is that imposing a minimum wage is a classic example of power without responsibility. Employers, not the Government, are forced to pay more if a minimum wage is imposed, and will have to close all or part of their businesses if they can't afford it. And it is workers, not Whitehall, who may find themselves out of a job.

Let's start with some of the figures. Most debate on minimum wages hovers around the [pounds sterling]3.50 to [pounds sterling]4 an hour mark. That is a good deal more than the present US level, even though average incomes there are much higher than in Britain.

SO it is perhaps not

surprising that a large number of people - well over four million last year - earn less than [pounds sterling]4 an hour, an official statistic that is probably understated since data collected from small firms is much less complete than from large.

What would happen if every employer in Britain was told to raise wages to at least [pounds sterling]4 an hour?

Every boss paying less would decide who to keep at higher pay, and who to shed, or whether to close altogether, take the business overseas or put themselves on the dole. Businesses already paying the minimum or more may, of course, be happy to see competitors put out of business. You would, for example, almost certainly see more corner shops close, or use family labour only. Old folks' homes may close or raise charges to levels that only the well-off, or those paid for by the State, could afford.

Untrained school dropouts would find it harder to get a job. …

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