The Tories need a rethink on the minimum wage

With youth unemployment rising to 1 million, the government – or more realistically the Tories – need a radical rethink of the how the British labour market works. Or more to the point, how it doesn’t.

David Cameron has been right in highlighting the absurdity and outrage of Britain’s poverty trap – whereby those on relatively low wages have little or no incentive to work as opposed to claiming welfare. And no doubt applying pressure to those who are essentially fit to work but on the swelling lists of incapacity claimants is a long overdue move. But at the moment, the Conservatives are only telling half the story.

The full, and substantial, cost of Britain’s minimum wage legislation is becoming increasingly plain to see. In times of plenty, the impact it had on pricing employees out of the labour market was less dramatic. But in the depths of a recession, it acts as a real barrier in getting people back to work. This is especially true of the young.

Read the full article here.

Welcome, Mark! I see that your article got a pasting from a lot of people on the Telegraph website. Rather bizarre – I can’t imagine many of them actually buy the Telegraph!I think your point about the importance of unpaid or poorly paid work experience as a way into careers is a very good one. As a Business School which has to promote graduate employability for thousands of UK and international students, we find it increasingly difficult to persuade employers to offer placements or internships given recent interpretations of the minimum wage and all sorts of Border Agency etc restrictions.

Questioning the minimum wage always angers those who see wages in moral terms. However, what they fail to appreciate is that wages do not reflect human worth or dignity, but solely the value to the employer of what an employee can produce. At any time, but especially in a recession, low skilled people are not paid more because of minimum wage laws; they are simply not employed at all. This is the point that advocates of the minimum wage simply refuse to accept.If this were not the case, why stop at £5.80 an hour? If the minimum wage were £50 an hour, we’d all live like kings!

Current Minimum Wage legislation offers a weekly wage of £ 200 for a 35 hour (standard in the civil service) week. After Taxation and National Insurance this leaves net pay at £ 175 per week. In outer London, housing benefit alone for a one bedroom flat is capped at about £ 160 per week.Tom Papworth and Mark Littlewood exhibit scant understanding of the role of the benefits system in labour economics. Questioning the minimum wage angers those who see wages in moral terms but bemuses those of us who see the situation in terms of game theory. Cut the minimum wage and the welfare bill rises. Then cut benefits and soon Tom and Mark will be scared to go out after dark.

Welcome, Mark! I see that your article got a pasting from a lot of people on the Telegraph website. Rather bizarre – I can’t imagine many of them actually buy the Telegraph!I think your point about the importance of unpaid or poorly paid work experience as a way into careers is a very good one. As a Business School which has to promote graduate employability for thousands of UK and international students, we find it increasingly difficult to persuade employers to offer placements or internships given recent interpretations of the minimum wage and all sorts of Border Agency etc restrictions.

Questioning the minimum wage always angers those who see wages in moral terms. However, what they fail to appreciate is that wages do not reflect human worth or dignity, but solely the value to the employer of what an employee can produce. At any time, but especially in a recession, low skilled people are not paid more because of minimum wage laws; they are simply not employed at all. This is the point that advocates of the minimum wage simply refuse to accept.If this were not the case, why stop at £5.80 an hour? If the minimum wage were £50 an hour, we’d all live like kings!

Current Minimum Wage legislation offers a weekly wage of £ 200 for a 35 hour (standard in the civil service) week. After Taxation and National Insurance this leaves net pay at £ 175 per week. In outer London, housing benefit alone for a one bedroom flat is capped at about £ 160 per week.Tom Papworth and Mark Littlewood exhibit scant understanding of the role of the benefits system in labour economics. Questioning the minimum wage angers those who see wages in moral terms but bemuses those of us who see the situation in terms of game theory. Cut the minimum wage and the welfare bill rises. Then cut benefits and soon Tom and Mark will be scared to go out after dark.

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