Ending Low Pay
As I posted yesterday, the chancellor has announced an ambitious five year programme to end low pay in the UK and back the hard-workers and young people earning the lowest wages.
I still do think that there is a wage rate above which, if you put the minimum wage floor above that level, you will start to drive SMEs out of business, price workers out of jobs, and destroy employment.
That's why we need a low pay commission to monitor the impact of the National Living Wage and all other minimum wage legislation, advise government on it, and ensure that it is not set at a job-destroying level.
The difference between my view of the issue when the original Minimum Wage was first introduced and my opinion now is that from the behaviour of the British economy in the intervening years we have overwhelming evidence that neither the original Minimum Wage nor the George Osborne National Living Wage has been set at a job-destroying level.
If it had been, we could have expected to see the introduction and increase of minimum wage floors followed by small business failures a reduction in employment by SMEs and a rise in unemployment, especially youth employment.
The British economy did not experience any of those things in the periods after the minimum wage and the National Living Wage was introduced - in fact, over the last four years we have seen the exact opposite of those things with SMEs creating millions more jobs, unemployment at a forty year low, total employment at record levels and youth employment up too.
I am not, by the way, suggesting that this proves the National Living Wage improved the employment situation. But Britain's strong employment performance in the four years since wage floors were raised by 11% in cash terms at a point when inflation was almost zero does conclusively disprove the idea that wage floors at their current UK levels must inevitably have the sort of seriously damaging consequences for employment which I and others once feared.
There is an excellent discussion of the progress made on this issue over the past twenty years and options for going forward. which welcomes the ambitious plans of Britain's political leaders to lift workers out of low pay while recognising that wage floors will at some point reach an optimal level above which they cannot be raised without destroying jobs, in the Resolution Foundation's 2019 annual Low Pay report, Low Pay Britain 2019, which you can read as a PDF file here.
My main concern about this is not the plans announced by the Chancellor this week, which I support. My fear is that if we get into an auction of promises in which each political party competes to offer higher wage rates then we could soon reach the situation where the less cautious parties do indeed propose to raise wage floors to a level which if implemented will destroy jobs.
Perhaps the way to prevent that going forward might be to encourage any government or opposition party which puts forward a new policy on the NLW or other minimum wage floors to ask the Low Pay Commission to audit the proposal first - and publish what they say.
- Ending low pay in the UK by 2024: we will raise the national living wage to two thirds of the median wage, helping over 4 million people and putting an extra £4,000 in the pockets of the average full-time worker on the National Living Wage.
- Supporting young people starting to build a life for themselves: we will extend the National Living Wage to 23 year olds from 2021, and to 21 year olds within five years.
I still do think that there is a wage rate above which, if you put the minimum wage floor above that level, you will start to drive SMEs out of business, price workers out of jobs, and destroy employment.
That's why we need a low pay commission to monitor the impact of the National Living Wage and all other minimum wage legislation, advise government on it, and ensure that it is not set at a job-destroying level.
The difference between my view of the issue when the original Minimum Wage was first introduced and my opinion now is that from the behaviour of the British economy in the intervening years we have overwhelming evidence that neither the original Minimum Wage nor the George Osborne National Living Wage has been set at a job-destroying level.
If it had been, we could have expected to see the introduction and increase of minimum wage floors followed by small business failures a reduction in employment by SMEs and a rise in unemployment, especially youth employment.
The British economy did not experience any of those things in the periods after the minimum wage and the National Living Wage was introduced - in fact, over the last four years we have seen the exact opposite of those things with SMEs creating millions more jobs, unemployment at a forty year low, total employment at record levels and youth employment up too.
I am not, by the way, suggesting that this proves the National Living Wage improved the employment situation. But Britain's strong employment performance in the four years since wage floors were raised by 11% in cash terms at a point when inflation was almost zero does conclusively disprove the idea that wage floors at their current UK levels must inevitably have the sort of seriously damaging consequences for employment which I and others once feared.
There is an excellent discussion of the progress made on this issue over the past twenty years and options for going forward. which welcomes the ambitious plans of Britain's political leaders to lift workers out of low pay while recognising that wage floors will at some point reach an optimal level above which they cannot be raised without destroying jobs, in the Resolution Foundation's 2019 annual Low Pay report, Low Pay Britain 2019, which you can read as a PDF file here.
I know and understand that some small and medium businesses will have concerns about this policy. However, the gradual increase of the National Living Wage to two-thirds of the median wage rate over five years is something which the vast majority of employers small and large should be able to plan for and manage.
Perhaps the way to prevent that going forward might be to encourage any government or opposition party which puts forward a new policy on the NLW or other minimum wage floors to ask the Low Pay Commission to audit the proposal first - and publish what they say.
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