Stumbling and Mumbling notes some pretty old-fashioned interventions planned in the UK (hat tip: Tim Worstall):
Tony Blair today announced plans to cut the jobs and hours of low-paid workers.
He’s going to raise the minimum wage, from £4.85 an hour to £5.05 in October. This as the Low Pay Commission recommends in its report today; it also recommends a rise to £5.35 in 2006...
SM is unimpressed.
Can I give [Commission chairman Mr Adair] Turner some advice? Try reading your own report matey.
In particular, appendix 3, which starts on page 213 of this pdf. It contains a survey of employers who were affected by the rise in the minimum wage in 2003. It shows that: 37 per cent of them cut staffing levels, whilst only 4 per cent raised them; 31 per cent cut basic hours worked whilst 3 per cent raised them; 28 per cent cut overtime hours; 81 per cent said their profits fell; and 63 per cent said they raised prices.
On some of the relevant research:
This, of course, is exactly what basic economics would predict. It corroborates this research, which shows that where the minimum wage bites hard – for example in care homes – it does reduce labour demand.
Which raises the question: how could anyone ever have thought otherwise...
One reason is that there is some research (like this pdf) which shows that the introduction of the minimum wage did not reduce employment.
Another reason is that advocates of the minimum wage focus on its macroeconomic effects, where any impact of the minimum wage would be too small to be detected. For example, the Low Pay Commission estimates that 2004’s uprating added just 0.08 per cent to the aggregate wage bill. Assuming a price elasticity of demand for labour of 0.6, and that all the adjustment came in job losses rather than shorter hours, this would have cost just 13,000 jobs. That’s equivalent to less than two days inflows into the unemployment figures...
And, of course, some will think that this is fine in the context of the broader agenda. SM is not convinced, however.
This wouldn’t be so bad if it raised the incomes of the poor. But the impact here is small. For one thing, many minimum wage earners aren’t poor. And for another, those that are poor will (eventually) see their tax credits cut as their wages rise – if, that is, they keep their jobs. The Institute for Fiscal Studies estimates (table 4 of this report) that over 1.7 million working parents face a marginal tax rate of over 50 per cent.
If I was inclined to be a supporter of the higher minimum wage, I might point out that the last point there may be more an argument for tax reform than a case against raising the minimum wage. I'm not sure I am so inclined, but I would enjoy a full vetting of the evidence and arguments. So post away, my friends.
UPDATE: I neglected to note that it was this Telegraph story from that motivated Tim Worstall's post today.
The introduction of the minimum wage led to employers cutting the number of hours that staff worked, new research showed yesterday.
The introduction of the minimum wage led to employers cutting the number of hours that staff worked, new research showed yesterday.
In a paper presented at the annual conference of the Royal Economic Society, Professors Mark Stewart and Joanna Swaffield claim that paid working hours have fallen by between one and two hours a week for low-income staff.
"The implication," said the authors, "is that about one quarter of the increase in basic weekly earnings of minimum wage workers was clawed back by the estimated reduction in basic hours."