An increase in the minimum wage is long overdue.
George Osborne’s comments this evening that he wants to see an above-inflation increase in the minimum wage are long overdue.
Since peaking at 9.6 per cent above inflation in 2001, the value of the minimum wage has gradually been overtaken by inflation.
Inflation levels surpassed the minimum wage percentage in 2008, the biggest difference between the two coming in 2011, with inflation percentages being almost 2 per cent above the minimum wage.
As well as failing to keep up with the cost of living, an analysis by the Resolution Foundation last year found that a worker on the minimum wage would need to work for 380 hours a week to match the annual salary of someone in the 99th percentile.
The research was, interestingly, released just a week after the government announced that the minimum wage would rise to £6.31 from October 2013 – the fourth straight annual fall in the real value of the minimum wage once inflation is taken into account.
Today’s comments by Osborne have come as something of a surprise. Just last year the Low Pay Commission, which sets the minimum wage, was warned by the government that it ought to consider the impact on employment and the economy before agreeing future increases.
The economy is unarguably in a better position today than it was in April 2012, which in part explains the chancellor’s newly found optimism: “we should enjoy fruits of our hard work,” he said today.
A much bigger factor in the decision, however, will be politics. The Tories were caught off guard back in September by Labour’s pledge to freeze energy prices. They don’t want to be caught in such a reactive position again; and Osborne, canny political operator that he is, is making sure the cost of living narrative is not strictly Labour territory.
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7 Responses to “A minimum wage increase is long overdue”
GO
Respectfully, I suggest that you Google ‘lump of labour fallacy’. Your line of thinking might seem like ‘common sense’, but economists are pretty clear that it’s mistaken.
If you’re talking about what happens when people disappear from the economy altogether, rather than what happens when they just stop going to a particular shop, you need to take a much wider view. It’s not just that those 5 people don’t buy their meat from Dave’s Butchers any more. They don’t buy *anything* from *anywhere* any more. Nor do they generate any profit for their employers, or use any public services. Now scale it up so that (say) 5,000,000 people disappear from the economy. That makes a real difference to the number of people who can make a living as shop assistants – and as landlords, plumbers, nurses, teachers, taxi drivers, etc. etc. So employers won’t suddenly be struggling to fill 5,000,000 vacant positions – those vacancies will just vanish as the economy scales itself down according to population size.
Timmy2much
“Foremost, these economists argue, employment of labor can expand the overall size of the economy, leading to further job creation. Reducing the amount of labor employed would decrease overall economic activity and thus further decrease the demand for labor.”
National GDP in this country has shrunk when measured against the population size. That is because most the additional labour that has been imported is employed in the low skilled market.
At this point you’ve got to ask how much additional economic activity is created by low skilled workers, which is where the competition is – its not at the top end like doctors where we are experiencing a shortage. Transport is overcrowded, our power supply is stretched, school places (particularly primary) are at a premium and there is not enough housing stock.
My point here is that we have recently increased the population which has increased demand but that demand has not equated to relative job increases across the board because there isnt the money.
You then have to ask how many of the 5m are needed to service that 5m?
On top of this technology is likely to make some low skilled jobs obsolete as far as employment is concerned displacing those people to other markets.
Now
What happens when you combine both points that I was making.
1. People with more free time will indulge in leisure activity.
2. People with more free time will look to gain further qualifications.
both will create jobs to help offset some of the jobs lost.