Lib Dem minimum wage plans make sense in long run

Last week’s election manifesto from the Liberal Democrats contained a proposal to “set the minimum wage at the same level for all workers over 16”.


Last week’s election manifesto from the Liberal Democrats contained a proposal to “set the minimum wage at the same level for all workers over 16 (except for those on apprenticeships)”. Young people aged 16 to 17 are currently entitled to a minimum £3.57 an hour, compared to £4.83 an hour for workers aged 18 to 21, and £5.80 for everyone over 21.

Equal pay for equal work has been a cornerstone of progressive politics for many years, but it can be problematic if it reduces job opportunities for younger workers. Economists often argue that younger workers are less attractive to employers (fewer skills, less work experience and so on) and so employers need to have an extra incentive to take them on – which is the argument for lower minimum wage rates for younger workers.

Under conditions of near full employment, which is what we had before the recession, this argument doesn’t really stack up. It’s true that youth unemployment tends to be higher than adult unemployment, even when the economy is operating at full capacity, but, in part, this is because young people experiment with different jobs and switch employers more frequently. It might not be purely down to their reduced attractiveness to employers.

So Liberal Democrat policy on the minimum wage could make sense in the long run, but implementation might be best delayed until employment has returned to something like pre-recession levels – and that could be many years away.

But there is a bigger question: do we really want people aged 16 and 17 to be working in minimum wage jobs at all, particularly if these jobs don’t offer formal, accredited training? They are very likely to be ‘dead-end’ jobs providing a regular wage but few escape routes, usually for young people who didn’t do very well at school.

To avoid this, Labour has promised to raise the minimum age for participating in education or training to 18 by 2013 in England. This doesn’t just mean staying in school for longer – it can include paid apprenticeships and other work-based learning programmes. It would then make sense to pay young people aged 16 and 17 a special rate if they were in work-based training, like the apprenticeship rate just announced by the government.

And at 18 the full minimum wage could kick in for everyone. Almost three quarters of young people aged 18 to 20 are already paid at least the adult minimum wage rate, so if done gradually this change could be absorbed by most employers.

However, the Liberal Democrat manifesto made it clear that they do not support Labour’s plans for raising the education and training participation age (nor do the Conservatives). This creates a problem for their minimum wage policy when it comes to 16 and 17 year olds, because only around a third of those in work are currently paid at least the adult minimum wage rate.

The danger is that some employers would find it hard to accommodate the higher wage bill for 16 and 17 year olds. This could mean the Liberal Democrat minimum wage policy has a negative impact on young people’s employment prospects if it is not matched by a guarantee of a place in education or work-based training.

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