The minimum wage is terrible. Aside from the Iraq war (which is still contentious), it is possibly the single worst thing Blair did whilst in office. Minimum wage, like minimum prices on any good, specifically reduces demand (i.e. jobs offered by businesses) creating unemployment; especially for low skilled and young people. Why do some people want to establish a minimum price of alcohol? To reduce demand! That’s not to say that the people who brought in the minimum wage were trying to price out the young and low skilled; I think they really believed they were doing good. They were simply idiots who didn’t understand basic economics.
Perhaps if the minimum wage is low enough it doesn’t damage jobs (or not by an widely appreciated amount). If that is the case for the UK, why did youth unemployment stop falling once minimum wage was introduced? Why did youth unemployment flatten and then begin to rise at that precise time? Obviously there are lots of factors in play, but the most obvious is the introduction of the minimum wage.
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The youngest (16-17 year olds) are the worst hit – exactly as would be predicted. If your labour is worth less than the minimum wage then you can either work in the black market or you will be unemployed. Under current economic conditions, the effect is, naturally, even worse.
Those over at Intern Aware are looking at the issue the wrong way as well. Many interns, working “for free” (or more precisely, for experience) only do so because the risk of employing an inexperienced person is high. When risk is high, value is reduced, meaning it isn’t worth a company hiring that person for above a certain amount. If minimum wage is £5 and the company calculates that interns are worth £4.50, they simply will not hire them or will only offer expenses style pay. Those who are priced out of the market simply have to go without pay or without experience. A wage of £4.50 an hour over two full days of work is more than Jobseekers allowance for under-25s; for anyone that cares. So not only does minimum wage ensure higher costs for taxpayers by increasing the number that will not be employed, but it makes people looking for work worse off – even if their hourly value would be less than minimum wage.
For those under 25, the Jobseekers rate is £56.25 a week. That works out at just under £1.41 an hour for 40 hours a week (which is slightly less than the UK average for full time work), or £1.77 for 31.8 hours a week (the average for the whole economy including part time work). If your labour is worth £2 an hour, it would be illegal for someone to give you a job at either of those rates with current minimum wage laws, but you’re worse off financially on benefits than you could be. How does that make sense? The taxpayer is worse off, the people minimum wage is supposed to protect are worse off – the only benefit is that people in government get to feel good about saving people from low wages. The same people forcing people to live on what is effectively £1.41 an hour. There’s not even any special exceptions to get around it. If you really want to work at a company and you offer to work for £2 an hour to get experience and prove yourself, the company will not take you because the legal risk is too high. Both the business and the individual lose. How many enterprising young people are essentially forced to live on benefits, at the expense of the taxpayer, because some champagne socialists want to ‘help’?
Minimum wage, to put it simply, is removing the bottom rungs of the ladder for individuals. It forces up the price of labour for businesses, meaning that the business might not expand, or move overseas or might close entirely. It means that people don’t get experience, don’t move up the rungs in work and don’t get to the point where they pay in to tax, instead increasing the burden on others (obviously, I’d like a system where welfare is private, but this would still be a problem even then). Minimum wage harms communities, as it ensures whole areas and industries that rely on low labour costs go out of business, leaving a legacy of unemployment. To put it simply, minimum wage in the UK is appalling, predictably and predicted, it has increased the level of unemployment, especially for the young and meant that life is just that bit harder.
This is why it was one of the worst things Blair did in government. The only people helped are those people whose value is low and don’t want to work. Minimum wage is then designed to protect what Cameron would call ‘scroungers’, whilst poor ‘strivers’ are priced out of the market. Screw the minimum wage, I want the right to work for £5 an hour. If Cameron and Osborne want to reduce unemployment and get the economy growing, one of many ways would be to scrap the minimum wage. It would be a bold move, and I don’t think they will do it, but they should.