Debate: should we scrap the minimum wage?
As new research shows that job cuts are hitting the lowest paid hardest, we ask: is the minimum wage helping or hindering UK workers?
Image: Scott Heppell - AP Photo
With unemployment on the rise and new research showing that low-paid workers are being hardest hit by job cuts, the question of how Britain can create new jobs in a stagnant economy is probably the biggest facing the coalition government at present.
As a result, the minimum wage - previously hailed as a triumph of the previous Labour government - has faced small but growing criticism since the coalition took power.
So does it offer much-needed protection to British families, or is the minimum wage simply preventing employers from offering more people work? We asked experts from two leading thinktanks to give their views.
'Why the minimum wage should be scrapped'
By Sam Bowman, head of research at the Adam Smith Institute
Image: Adam Smith Institute
Too many politicians have failed to realise that they cannot change the laws of economics any more than they can ban gravity. The national minimum wage (NMW) is one example of this failure.
First introduced by the Blair government, it sets a wage floor under which no person can be employed. The hope was that this would create higher wages for the people at the bottom.
The reality was that it priced people out of work - economic reality trumped political rhetoric. The outcome has been record levels of unemployment among young people, who are most vulnerable to the joblessness that minimum wage laws help to create.
Wages are a function of productivity
What happened? Wages are a function of productivity. Employers want the best employees for the least money, and employees want the most money for the least work. If there was only one employer in the world, they could set wages at whatever they want. But once there are several employers in a marketplace, they have to compete to attract workers to work for them rather than their rivals. That causes a bidding war where wages for jobs rise to roughly correspond to what they are worth in productivity terms - just enough for the firm to make a small profit.
Wages correspond to productivity, but what about those whose productivity is low enough that they fall below the NMW floor? They are priced out of work altogether. Take the example of a supermarket, looking to hire a tenth checkout worker. This extra checkout worker might make the employer the equivalent of £5.50/hour - even if the calculation is imprecise, they usually have a rough idea of the numbers involved.
But with the NMW in place, hiring this person becomes unprofitable: at the current NMW level, they would be losing 58 pence an hour by hiring the extra worker. No firm can do that and hope to survive.
Instead, the job isn't created, the firm loses out and there is one more person in the dole queue who doesn't need to be there. The NMW cannot make people more productive, but it does put people out of work.
Those at the bottom worst hit
The worst-hit people are the ones at the bottom of society - especially young people who lack work experience. Tragically, the NMW prevents them from getting their foot on the ladder, working badly-paid jobs to gain the experience they need.
Economists studying this relationship have estimated that a 10% rise in the minimum wage level causes a 1-3% rise in youth unemployment. With Britain's youth unemployment levels at an all-time high of 19%, it's time for the government to abolish the minimum wage.
'The need for a minimum wage and much more'
By Dr Faiza Shaheen, senior researcher on economic inequality at the New Economics Foundation
Image: new economics foundation
A minimum wage ensures a decent pay floor. It means that the market cannot drive wages down to a level where people cannot sustain basic living. After all, what's the point of working when it doesn't even give you enough money to sufficiently feed and clothe your family?
At the end of September, the minimum wage went up to £6.08 from £5.93. Some businesses are complaining that this is too high, especially at a time when many retailers are struggling. However, at 35 hours per week this wage amounts to around £200 a week, or just under £10,000 a year once you take into account tax and national insurance contributions.
With this wage packet you would have to pay your bills, including rent and mobile phone, as well as for food, clothing and transport. Don't forget some light entertainment and squeezing out some savings for a rainy day, or perhaps a holiday. You do the sums.
Yes, there might be some help from the government in the form of tax credits, but surviving on this much money is still a stretch, especially if you have children.
No wonder one in 10 of the poorest fifth of households are behind with at least two bills.
Calls for a 'living wage'
For this reason, community groups, such as London Citizens, have been campaigning for a 'living wage'. A living wage is specific to a place - for example in London, where living and transport costs exceed other parts of the country, it is set at £8.30. This figure is calculated to ensure that people can access the goods and services that the average person in the UK believes to be essential for a decent life. Recent research showed that one in five of the UK working population is paid below a living wage.
So far, there has been little evidence to show that the minimum wage is destroying jobs, leading many to conclude it could be pushed higher. If businesses really cannot afford to pay even the basic minimum wage, then rather than lowering or abolishing the minimum wage, we should ask why it is that our economy is producing jobs that condemn our working citizens to poverty.
What's your view on the minimum wage? Have your say by commenting below or emailing email@example.com.
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"WHAT I WOULD MOST LIKE TO SEE IS DAVID CAMERON LIVE ON THE MINIMUM WAGE. "
I would like to see all politicians doing this and to start practicing what they are preaching us.
WHAT I WOULD MOST LIKE TO SEE IS DAVID CAMERON LIVE ON THE MINIMUM WAGE.
Scrap the minimum wage, are you seriously having a laugh. So we scrap the minimum wage and then employers can legally reduce their wages bill to maximise their profit even further and thus causing even greater poverty. What a completely pathetic country this is becoming.
If anything the minimum wage isn't high enough, the minimum wage needs to be at least £7.00 ph just to stay in line with the inflation, and not to mention the money greedy government.
This country and it's power hungry money greedy government are out to destroy the working class completely, but it's ok none of this effects them with their tens of thousands and bonuses they receive each year.
£5.93....... try and live on that, pay rent, pay fares, electric, gas, water,, get the politicians to live on that, oh I forgot, they're totally out of touch` with reality, minimum wage.... a joke. When you retire you might get £100-200 pw to live on..... politicians????? £1000-2000 pw, they make me sick, dishonest and self serving, how can anyone aspire to have a decent life when you live on poverty wages, let those who think its ok to live on £5.93 ph, let them live on it.....wages are now 8-9 years in arrears, they make me sick
Your veiws are truly pathetic, biast and not to mention disciminative against all uk workers, so you're not of british origin then, that much is clear.
You are also basing your veiws on an unfortunate experience within a workplace. I am 44yrs old and have worked since leaving school at 16. I have never had a day off sick and neither have I ever taken a holiday. I too have been in employment where I have been left to do all the work, but why should what someone else is doing, or shouldn't be doing concern me. As long as I know that I am doing my job to the highest standard and to the best of my ability then that is all that should concern me.
aj cj Get a grip, If businesses can't manage then they shouldn't be in business in the first place. It's 2011 not 1987.
You obviously run your own business, to leave such a stupid comment like that.
Everyone has bills to pay. If they abolish the minimum wage or even decrease it to your ideal figure of £4.00 ph then that would only increase debt in this country ten fold and produce even more poverty as no one will be able to afford basic essentials such as Gas, Electric and then that would most probably lead to a case of basic human rights.
Dear Sam, please try living on £6 an hour in London before saying these things. Do you not think that in the example of the checkout cashier costing the company 58p per hour to hire, the company would do better to shave 58p per hour of the wage of it's senior staff (the CEO perhaps? Would he or she not want to set the example to their kids that with great power comes great responsibility, i.e. the richer you become the more important it is to look after the society around you? Then they could all watch the Spiderman movie together without any awkward feelings of hypocrisy) and deliver a better, faster service to it's customers, than to call for the abolition of the minimum wage and risk letting more people live in "poverty"? Would it not be the case if the minimum wage was abolished that the people at the top would exploit the situation and get richer while the people at the bottom got poorer? If you think not, you have more faith in the human spirit than I do. Greed is a fundamental human instinct that exists in everyone and those that are free to indulge in it, more often than not, do. Giving them the opportunity to restrain themselves is unlikely to make them do so and they will milk it for all it's worth. Perhaps we should abolish the concept of shareholders and the stock market so that employers can look after their staff more and worry less about lining the pockets of already wealthy people who don't even work for the company but just sit back and collect the profits? But, really, I don't have a solution to the problem. All I know is that, as a worker on minimum wage, if I was earning any less, I might as well be on benefits and have everyday free to enjoy myself. What would the right wing have to say about that though? Something negative too I suspect.
I just wonder how many bosses on 100k+ have thought,"as we're all in this together" i'll take a pay cut of 11k and employ someone on NMW,taking someone off benefits and creating a taxpayer,therefore boosting the economy and reducing unemployment?
My guess is absolutely none, if they had it would be big news and good PR for their company.If they were made to then things would look a whole lot brighter..
They don't need to scrap the minimum wage they need to up it. If people are that desperate to actually WORK for their money instead of "sponging" then they could get an apprenticeship its a way to get on the ladder at under minimum wage! I would also like to put that as we are a democracy we should have a say in what the Politian's wages are, they should also have there expenses STOPPED COMPLETELY if they where serious about helping the economy they would consider this! If I asked my boss to pay for me to have a pond or a bird house or all the luxuries that they live off he would tell me where to shove it yet we PAY for all of this for them with "OUR" taxes!? They must have a right laugh at our expense!
This country = COMPLETE JOKE!
like it or not the current government would love to help industry by doing away with the minimum wage and reducing the masses to an even lower wage bracket, my issue with this is that those at the top in well paid jobs never seem to have this issue as they get richer and richer complaining about how much tax they pay as they burrow away the money they do make, government kids us on that they will invest in the UK but many companies take thier profits overseas so they dont have to pay the tax in the UK. The UK government is in the pockets of industry corrupt and feeding off those without while they and the fat cats get fatter.
What I find scary is some of these fat cats earn so much that their tax is higher than the average person can earn in a year.
Scrap the minimum wage then
But introduce legislation that no one in a business can earn more than 15 times the salary of the lowest paid employee. That would be fair.
Respect your workers - then they wil respect you.
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A new study suggests a typical financial emergency costs around £1,200 - would you be able to raise that kind of money within a month?
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- Yes - from my savings
- Yes - I could put it on credit
- Yes - I could borrow from family or friends
- No - raising that kind of money in a month would be impossible