Vince increases the minimum wage. It’s the right decision, but we do need to get local about it.

This was the Mirror (and many other news outlets) two weeks ago:

Minimum wage cut fears: Fury as Government considers ‘kicking’ low-paid workers

The reality? The Government has accepted the independent Low Pay Commission’s recommendations to increase both the adult and youth National Minimum Wage rates. The BBC reports:

Minimum wage to increase to £6.31

To be clear, the 1.9% increase is below the expected rate of inflation — so this is a real-terms cut. The increase is, however, higher than either public sector workers or those on benefits will receive. The only recommendation of the Low Pay Commission that was rejected was the proposal that the rate of pay for apprentices be frozen; instead they get an increase of 1.1%.

Here’s what Lib Dem business secretary Vince Cable had to say:

The independent Low Pay Commission plays a crucial role in advising the government when setting the National Minimum Wage every year. It balances wages of low paid workers against employment prospects if the rate was set too high.

We are accepting its recommendations for the adult and youth National Minimum Wage rate increases, which I am confident strikes this balance. However, there is worrying evidence that a significant number of employers are not paying apprentices the relevant minimum wage rate.

Apprenticeships are at the heart of our goal to support a stronger economy, and so it is important to continue to make them attractive to young people. Therefore, I am not taking forward the LPC’s recommendation to freeze the apprenticeship rate due to non-compliance, but instead am raising it in line with the youth rates. We are working on a series of tough new measures to ensure we tackle non-compliance issues across the board.

The increases have been attacked by the Institute of Economic Affairs (IEA):

The scale of the rise – a 2 per cent increase, more than 50 per cent higher than current average pay growth – will add considerably to business costs and disincentivise companies from hiring additional staff. There are swathes of jobs that need doing, but in the current economic climate many simply cannot justify a wage of £6.31 per hour.

This assertion is contradicted by the thorough report of the Low Pay Commission:

… although the bite [of the minimum wage] in the low-paying sectors has grown even more than in the economy as a whole since 2007, in 2012 the number of jobs in the low-paying sectors increased faster than the number in the whole economy. Further, generally the employment performance of those groups of workers most affected by the minimum wage – women, older workers, disabled workers, ethnic minorities, and migrants – has been better, since the onset of the recession, than their less affected counterparts. However, there are two groups whose experience has been worse: young people and those with no qualifications.

Our research programme for this report has further extended the literature on the impact of the minimum wage on earnings, employment and hours. Our overall conclusions from this work are that as a result of the minimum wage the lowest paid have received higher pay rises than their peers, and that there remains little evidence of a significant adverse effect of the minimum wage on employment. [my emphasis]

Vince is right: a balance needs to be struck when setting the minimum wage (if you accept, as I do, that one is necessary)… Too high and, yes, it will have a negative impact on jobs. Too low and it’s the tax-payer which picks up the tab, either through paying for tax credits or benefits.

This is one area where there is a clear need for independent expertise able to assess the available evidence and strike that balance. I’m glad the Commission exists and I’m glad the government listened to it.

However, just in case that sentiment strikes too cosy a chord with Lib Dem readers, I think the IEA does have a point when it calls for a localised minimum wage: ‘In its current form, it is a blunt instrument, which takes no regard of the wide variation in labour market conditions around the country.’ This is already recognised by campaigners for the living wage, which distinguishes between London and the rest of the UK. The logic of such a position — acknowledging that pay and the costs of living vary according to where you live — should be extended more widely.

* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.

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33 Comments

  • A LARGE increase in minimum wage will do more than the cruel bennifit cuts to get people in work so the little playing around Vince done is playing not doing anything constructive

  • Eddie Sammon 15th Apr '13 - 8:43pm

    Don’t be dishonest, Vince cut the minimum wage. I think it was the right decision but let’s be honest about it.

  • Martin Lowe 15th Apr '13 - 8:49pm

    How do you work that out, Eddie? He accepted the Low Pay Commission’s report for adults, and went further than its recommendations for apprentices.

  • Eddie Sammon 15th Apr '13 - 9:08pm

    I admit you explained it in the body of the text, which I did not read, I just read the headline and got annoyed :). And Martin, I know he accepted the Low Pay Commission’s recommendation, but the government had told them to think about unemployment. I’m not criticising the move, just some of the headlines I have read about it.

  • Eddie Sammon 15th Apr '13 - 9:09pm

    It also highlights my greater annoyance at quantitative easing and the like, with the government hiding cuts behind below inflation “increases”.

  • Er hang on. The minimum wage is going up. That’s a rise in the amount people will actually get. If it’s not going up by the rate of inflation it will buy less, but it is still an actual increase. How much worse off would people have been if it hadn’t gone up as the moaning minnies from the business organisations wanted?

    Of course, Tony Greaves is right that we should campaign for a living wage as a minimum, but it will have to be introduced in stages.

    Just remember that British Industry said that ANY form of minimum wage was not acceptable and were proved wrong.

  • Eddie Sammon 15th Apr '13 - 10:48pm

    Anyone campaigning for a living wage is void of economic competence. A living wage would simply increase unemployment, immigration, inflation and potentially close businesses or result in fewer businesses opening up.

    Wages should be set by the laws of supply, demand and competition in the labour market. People will respond and say “ah but the government can invest into industries and create new jobs”, but where is the money to pay for this? Borrowing. We would be sowing the seeds of the next financial crisis and do nothing to solve the current one.

  • Eddie Sammon 15th Apr '13 - 10:49pm

    Should we have a separate living wage for people with children as opposed to single people? Or people who live in the South? It is just going down the route of government intervention and returning Britain to the 70s.

  • i Stephen can th liberal democrats also cast their eyes on bogus employment such as is happening in blackpool. My grandson went to work a 48 hour week for 150 pounds. He was to pay his own tax and insurance and work on a call centre. He was so excited – he had a job. He lasted one day and was so upset at the nasty people who laughed at him. Of course he is now one of the lazy skivers because over a thousand people applied for 60 jobs at merlin enterprises. Thank you all for this wonderful fair system. Pat

  • Simon McGrath 16th Apr '13 - 8:27am

    @Tony Greaves – the mininum wge is a very attactive prospect but will undoubdedly reduce the number of jobs. Is it view that this trade off would be worth the positve effects on those who are still employed ?

  • When the last government said it would introduce a minimum wage commentators just like Eddie Sammon said that such a move would destroy jobs and make it impossible to employ low paid workers. This proved not to be the case.

    The same people will shout if we slowly raise that minimum wage to one people can actually live on. It’s a complete red herring to talk about different rates for single people and families and regional variations. That’s not how it works now and no-one is suggesting that it should.

    Capitalism changes and adapts to new rules. After all, the ending of child labour and women working in mines was going to spell the end of the world as we knew it, except that it didn’t. Employers were forced to change their ways and the world went on. That’s just how it would be with a living wage.

  • “I think the IEA does have a point when it calls for a localised minimum wage … This is already recognised by campaigners for the living wage, which distinguishes between London and the rest of the UK. The logic of such a position — acknowledging that pay and the costs of living vary according to where you live”

    Whilst this sounds good, it only create more bureaucracy and division.Lets assume for one moment that we have a two tier scheme: ‘London’ and the ‘rest of the UK’, firstly we need to draw a line in the sand and create a boundary to just what exactly we is meant by ‘London’ – in so doing creating situations where people will effectively live next to each other but be deemed to be in different parts of the country and hence receive differing levels of benefit. Yes we can fine tune it, but this just increases complexity and bureaucracy…

    No it is better to have a single national rate and let people determine how they will spend it and use regional investment and business relief’s/incentives to encourage the development of local business communities.

  • Eddie Sammon 16th Apr '13 - 10:27am

    Mick, you say that the minimum wage did not reduce jobs but how do you know that it did not reduce job growth? I’m against all forms of minimum wage and I’m against welfare sanctions too. Minimum wages and then forcing people to accept jobs is pretty much forced labour. If people think the wage offered is too low they should be free to refuse to accept the job. This is how it should work.

    I don’t see why the government has to enforce a living wage where people can afford holidays, especially when other countries don’t even have minimum wages, it will just send more jobs abroad and reduce inward investment (or inward investment growth). Business regulation needs to be competitive as well as tax rates, we can’t just cut ourselves off from the world and pretend we live in an idealistic solace where competition doesn’t exist.

  • Eddie Sammon 16th Apr '13 - 10:36am

    I want to make it very clear: there should be no minimum wage and no welfare sanctions. The left and right have got this all wrong.

  • Eddie Sammon lives in a dream world. It is the nonsense of the Adam Smith institute. There is no such thing as a free market. It does not exist. First, you have to have a currency. Someone has to issue that currency and someone has to set interest rates. Right there you have taken an axe to your so called free market. Then you have to have property laws. Someone has to write those laws. Someone has to judge enforce them. Someone has to appoint judges to decide if they have been broken. Your so called free market is now on life support.

    Supply and demand is not neutral. It always favours the rich. It is not a level playing area. Which is why the well off claim to support it. There are all kind of cartels and fixed pricing that that rarely get exposed. And an army of corporate lawyers to intimidate the competition. It would seem lib dems like the growing gap between rich and poor, and want to make it worse. Good luck in your race to the bottom. But perhaps you should make sure your voters know what they are getting if they vote for your party.

  • Peter Hayes 16th Apr '13 - 1:24pm

    Eddie, the laws of supply and demand are not equally balanced. In a time of full employment, remember that?, the employee could move if the wage offered was low. Now the employer has the upper hand BUT the employee has rising cost, such as fuel, and finds it difficult to move. A sensible level of minimum wage would reduce government costs in tax credits which could be used to reduce business and/or employer taxes.

  • Eddie Sammon 16th Apr '13 - 5:00pm

    @ Sally – I don’t mean a literal free market with no regulation. You say supply and demand favours the rich, but the world is based on supply and demand, you can’t just get rid of it because you don’t like it. The free market does a lot more for social mobility, freedom and justice than a centralised command economy ever could do. Also, don’t try to attack my morals, I’m far more concerned with absolute poverty than I am relative poverty.

    @Peter – I don’t believe government costs can be migrated away by increasing the minimum wage. You say in a time of full employment, but how can you create that by increasing the minimum wage? It would just lead to more borrowing. What annoys me is when the likes of the Labour Party support apprenticeships earnings way below the minimum wage, and even have people on unpaid internships, but yet they defend the “minimum wage” to the death. It’s typical Labour nanny state government saying what is honourable and deserves apprenticeship or internship status and what does not.

  • Eddie Sammon 16th Apr '13 - 5:03pm

    I am also concerned about the gap between the rich and the poor, equality matters for many reasons, but it isn’t as important as absolute poverty.

  • Funny how they go up by a % rather than an actual number of £ or pence. As people on minimum wages earn less than is required for a minimum income, shouldn’t it go up or down by the amount of the minimum income standard, rather than falling behind by a greater amount every year?

    After all, if we are saying that apprentices should get a wage that means they have to go without a winter coat, no holidays, and no winter heating, shouldn’t we make sure their wage goes up by the minimum income standard (minus the increase in winter coats, holidays or heating costs)?

  • I cannot believe any Lib-Dem would ever advocate getting rid of the MW; the slogan ‘make work pay’ is one I actually agree with; it is just unfortunate that this Government has got the implication of this ideal backwards.

    You do get people into work and stimulate economic growth by continually deprecating the living standards of the poorest; this is counter-productive and self-defeating for reasons that have been stated on this site so many times that I cannot bear repeating them.

    We are doomed to further from social depravity and weak growth in this county until businesses (and the Tories/their allies) realise that the best way to make money is to expand your markets, and the best way to expand one’s market is to increase the number of people with the disposable income required to buy your products/produce,

    In fact, the reason our benefits bill is so high can be attributed to the wage issues in this country. Because in this country even the vaste majority of those in work do not earn enough to support their basic living standards, we need constant government intervention; however, because such intervention can only ever be to provide the basic amenities need to survive, those living off such support often suffer ill-health (NHS/disables/income support), no savings for old age (pensions), housing issues (housing benefit), regressive affects of CT (CTB); this only leds to further strain on the Government, while those in receipt of such support are also unable to provide anything to the economy because output expenditure is simply too low and they will be paying the least possible in Tax while utilising the resources provided by frontline taxes the most. This undermines the economy leading to higher unemployment or under-employment (tax credits/JSA), which only further continues the spiral of depression, and leads to further crime and anti-social behaviour, which costs even more to the economy. I could go on, but my point is made.

    A decent wage is not only morally justifiable, but it is also vital for the growth and stability of this country, and those who say that relative poverty is less important than absolute poverty is just someone who has never had to face any poverty, and as such, cannot appreciate that all relative poverty is, is absolute poverty waiting to happen because poverty is a spiral of depression which keeps getting worse and worse, and the longer you hold off from trying to cure this illness, the more resistant to any medicine it becomes. The only way to prevent absolute poverty is to stop it from occurring in the first place.

  • Sorry, this should read:

    “You do not get people into work and stimulate economic growth by continually deprecating the living standards of the poorest; this is counter-productive and self-defeating for reasons that have been stated on this site so many times that I cannot bear repeating them.”

  • Eddie Sammon 17th Apr '13 - 1:26am

    Liberal Al, I have read your arguments and I disagree with most of them, but at least you haven’t accused me of being a right wing nutjob who just wants to make the rich richer.

    The only thing you said that I really have an issue with is: “those who say that relative poverty is less important than absolute poverty is just someone who has never had to face any poverty”. This is not true.

  • Thanks Alex. Do you know of some good research that investigates the highest minimum wage that would not induce any significant disemployment effects? This should have the largest impact on positive social outcomes such as alleviating poverty.

  • Eddie Sammon 17th Apr '13 - 9:12pm

    Price controls are preventing the labour market from meeting its equilibrium, as today’s figures help to demonstrate. Removing sanctions from the welfare system would minimise exploitative working conditions.

  • “The privilege of the English laborer to choose his employment and his master, even when such choice legally exists, does not prevent his service being truly slavery. For he has no choice but to toil incessantly for wages barely affording a scant and wretched support, or to starve–and no change of pursuit, or of service, can make that condition better. It is true that there is no legal prohibition to the laborer to change his service. But it is rare that any better situation can be found; and more generally, he who would abandon his actual employment in the hope of obtaining better, would be more likely to obtain neither new service or even still lower wages. This must be the case while, for every vacant place of a laborer to be filled, there are two or more idle and starving applicants ready to take the service with half if they cannot obtain whole wages. Such and other circumstances of difficulty in obtaining new employment practically debar the laborer from making the attempt to change his service. And when, after spending the prime of his life and strength as a slave to want and privation, the English laborer becomes, by sickness or age, unable to earn wages on which he and his family can exist, the regular refuge from absolute starvation is the pauper maintenance exacted by law from the parish–to which wretched condition for himself and his more helpless wife and young children, if any there are, every English laborer looks forward as his future destiny, scarcely less certain to occur than death. Under the Poor Laws and the Poor-house regulations of England, every semblance or pretence of what is generally and falsely called freedom disappears. According to the discretion and will of the overseers of the poor (acting under the general direction and authority of the poor laws, and in reference only to the pecuniary interest of the parish,) the man is hired out to whomsoever will pay the largest proportion of the cheap sustenance allowed by the parish–the wife is, by different location, separated from her husband–the young children, as soon as able to perform the lightest service, are “put out” for their support, or a portion of it, to any who will so employ them, and, later, bound as apprentices, for labor of any kind and at any place, to serve their masters (as personal slaves) until they reach twenty-one years of age.”

    From Slavery and free labor, described and compared by ant-abolitionist Edmund Ruffin 1860.

  • Eddie Sammon 17th Apr '13 - 11:03pm

    “The privilege of the English laborer to choose his employment and his master, even when such choice legally exists, does not prevent his service being truly slavery.”

    OK then, if people think workers get exploited by their bosses, then that means bosses get exploited by their customers. Most bosses have to work to pay the bills too, you never really work “for yourself”, you work for your customers. I really want to kill Marxism. One day, one day.

  • Eddie,

    the above arguments were put forward by a pro-slavery advocate in a flawed effort at comparing the condition of the English Labourer with the system of slavery in the American South. Slavery as an economic system ultimately collapsed in the American South because there was no domestic demand from wage-earning workers to spur the enterprise that existed in the Northern States.

    What is more pertinent, at the time those words were written, Great Britain was the world’s pre-eminent superpower, the industrial workshop of the world and the richest nation on earth in an Empire on which the sun never set. That was the paradox that Karl Marx grappled with when he was writing ‘Das Kapital’.

    The same Laissez-fare arguments about competing with the American South or the Russian system of serfdom were put forward in the mid-nineteenth century to maintain wages at barely subsistence levels . Public works assistance was curtailed in Ireland in the middle of the Irish Potato Famine for fear that it might undermine the proper working of the Labour market leaving millions to starve. The UK suffered economic collapses virtually every decade from the 1820’s forward and lost a considerable element of its large industrial lead over the economies of Continental Europe during the long depression that began in 1873.

    It was not until more enlightened thinkers like Asquith and Lloyd George arrived on the scene that economic policies that advanced the cause of working men began to be introduced with the People’s budget of 1909. Beveridge’s welfare state built upon those advances and some semblance of a social contract was developed. Minimum wage legislation is a natural progression of the social and democratic advances of the Twentieth century.

    Understanding that maintaining the labour share of production whereby wage growth is equal to or greater than price inflation is an essential element of avoiding damaging periods of deflation and economic slumps. It may also be a critical element in avoiding the fears expressed by Karl Marx that the capitalist systen in tending towards an ever greater concentration of wealth in the hands of the bourgeoisie, feeds on itself and will inevitably implode in a class struggle for a more equitable share of natural resources and the product of labour.

  • Eddie Sammon 18th Apr '13 - 6:03am

    Interesting notes. I understand how before the birth of the welfare state the problem of worker exploitation was much more severe and akin to slavery.

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