Why I... think the national minimum wage should have been set Pounds 1 higher

September 25, 1998

Frank Wilkinson

Senior research officer in the department of applied economics, Cambridge University

I welcome the fact that the government is to bring in a statutory minimum wage, but it is a missed opportunity. It has been set too low and there is no mechanism for upgrading. The future is left blank and the minimum wage risks becoming a political football.

The proposed rate of Pounds 3.60 an hour for over-21s, Pounds 3 for 18 to 20-year-olds and no legal minimum for under-18s will institutionalise low pay. In local authorities the pay floor for employees is Pounds 4 an hour. Outside competitors for local authority contracts will be able to pay Pounds 3.60 an hour - so a driving down of pay levels for the low paid can be expected.

I believe that the poor are paid low wages not because they lack skills but because their skills are undervalued. Women fare worst but the wages of low-paid men are sharply dropping towards the rates paid to women.

Inefficient firms can pay their workers less than they are worth to offset the effects of poor management and obsolete equipment. Exploitative firms rake in high profits through paying people too little. Many very large firms are low payers - including those in retail, hospitality, cleaning and security.

The rate should have been set at around Pounds 4.50, phased in gradually with special measures to protect small firms. Neither is there any evidence that allowing wages to decline continuously has a beneficial effect on employment levels. To be really successful, competitive organisations need a highly motivated, highly paid workforce. A large part of the Low Pay Commission's report is spent justifying a low minimum wage but in its appendices there is a lot of analysis from which you could draw quite different conclusions.

It would be naive to think we could jump from a low-wage economy to a high-wage one, but you could have a long-term perspective and plan from it. I would have hoped for proposals about how the legal minimum wage fits into a range of other policies, including social welfare and industrial development. But there is none of this. The minimum wage stands on its own, isolated and extraordinarily weak. We have got a minimum wage at last, after many people have fought so long for it. But I feel to an extent, so what?

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