Minimum Wages

Sun, 12 Jan 2014

I was asked, in a comment in last week's blog post, what I thought of the concept of a minimum wage. I briefly answered, with a disclaimer that I didn't think there was an easy answer, so thought it could be the topic of this week’s post.

I want to take a step back from the specific question of minimum wages and ask a few questions:

• Firstly, I ask the question: how much do we need people to be receiving to survive?.  I’m going to assume that most of my readers could not live with this number being too low, taking into account ethical, empathetic or even self-interested grounds (fear of crime, etc).  We need to recognise that if this isn’t coming from employers, it will have to be coming from the state.


• Next I ask: what do we want people, particularly those unable to get higher paid work, to be doing?  Ideally I would want them to choose (autonomously) to contribute in whichever way they could best - either through a job or community, or perhaps through improving their future ability to contribute, say by studying.


• Finally I ask, to what extent should people’s need for income be met by state or employers? The trivial answer is that as much as possible should be paid by employers, but even this isn't trivial: increasing how much the employer pays for an individual may lead to more people being unemployed and fully paid for by the state. Or it might make the work they are given less likely to lead to better paid work in future.  To be honest, I’m more relaxed about this question - I care far more about the first two questions.

The challenge is then to come up with policies and actions that support our goals and manage the conflict between them.  For example, forcing people in particular jobs will tend to increase the amount of money paid by employers in the short term (it is less clear in the longer term), but at the cost of autonomy and the desirability of the work they’re doing (for the individual or society).  Similarly, job creation schemes have costs (in other words, more money is being spent by the state), but I definitely believe the best schemes do provide excellent value in what employers will pay over the long term.

Minimum wage regulations are another example of such a policy that affects our goals.  It will increase the amount paid by employers for those individuals that have jobs, but reduce the number that are employed.  It is incredibly difficult to predict, for different increases in minimum wage, how much the number employed will go down, as it has short term and long term effects, and will depend on the skills of people, the demands for these skills by employers, and also the range of other policies influencing the unemployed and low income earners.  So I’d caution against trusting predictions of the impact of a given change in minimum wage, and note that most of the people speaking out have a vested interest in lowering or increasing the minimum wage.

So, as for my view, I’m certainly prepared to accept a small reduction in employment if it leads to employers paying a higher portion of people’s need for income, particularly if it improves the quality of the work that the people are doing and their sense that it is worthwhile, but there’d be a level of reduction that I’d consider no longer justified.  I really couldn’t tell you which case we’re in right now.

And I’d stress that a minimum wage is only one of a range of policies aimed at increasing the value of the whole population’s contribution, and may not be the best policy:  I still prefer a guaranteed basic income as a more effective way to deal with the increasing proportion of the population forced into low income employment or unemployment.