The TUC is being very silly about the £15 minimum wage
The TUC has decided to call for a £15 minimum wage. We assume that it’s all because the Americans have had that Fight for $15. The TUC seeming not to know that $15 is a different sum from £15.
More importantly, $15 an hour in a country where the median wage is $30 (-ish) is very different from £15 where the median wage is £13.57. That second is moving into Lake Woebegon territory, where all our children are above average.
Yes, this is important:
Inevitably, the TUC’s proposal will prompt warnings that higher pay will come at the expense of jobs. But this argument has been deployed ever since Tony Blair’s government introduced the minimum wage in 1999 at £3.60 an hour. The massive job losses predicted then have not happened and there has been no trade off between tackling poverty pay and employment.
In large part, that is because increases in the minimum wage have been gradual over the past quarter of a century. The Low Pay Commission, the tripartite body that recommends the level at which the minimum wage should be set, has continued to push the boundaries to see how high the wage can go without any deleterious effects. Its conclusion is: so far, so good.
Actually, the Low Pay Commission report on the effects of the minimum wage said that it cost some 30,000 jobs at that original and low level. As ever in economics the point is not that some of this will happen, it’s how much of this will at what price? A minimum wage of £1 an hour in an economy of £13 wages has a trivial effect simply because near no one is paid £1 an hour in such an economy. A £50 an hour minimum will have a large effect. What we want to know is how much effect at what price?
Fortunately the government commissioned a report on just this point. Arindrajit Dube is a very pro-minimum wage researcher so it’s not like us, or the New York Times, shouting that the only real minimum is £0 an hour (true by the way, for that’s what you get if you’ve no job). Dube’s specific task was to look at what portion of the median wage can that minimum be pushed up to without startlingly bad effects elsewhere?
The answer is in that 50 to 60% range of the median. Not a huge surprise really, as that result can be seen in work from back in the 1950s too. Not that many people get paid much less than 50% of the median wage so the effects of pushing the minimum up to that are there, they most certainly are, but they’re not large. The effects fall on the disabled, the young and untrained, we would and do argue that those costs are too high. But the more general effects of shafting large numbers of workers through unemployment arrive in that 50 - 60% of median range.
Sajid Javid at one point announced a policy of getting the minimum to 66% of median. This being pure politics - 66% of median is the normal definition of “low pay” so pushing the min up to that level of med. would allow one to crow that “I’ve abolished low pay!”. Except, of course, for all those on £0 as a result.
One more thing. We talked (OK, emailed) directly with Professor Dube when his report came out. There are two median wages we can use. There’s the full time, full year median, which is some £15.65. There’s the all workers - so including part time and part year - of £13.57. Which of these does that 50-60% range refer to?
Sadly for those who would like a much higher minimum wage it’s the lower of those two. Even if we accept all of the assumptions being made about the minimum wage. We don’t care about the young, untrained or disabled, we’re OK with there being some unemployment effects but not too many, then the maximum sensible minimum wage for the UK is £8.14 an hour.
The TUC’s decided that £15 looks much better on the basis of a comparison with a different country, with a different wage structure, in a different currency. But Fight for £15’s a good campaign slogan.
Have we mentioned before why we think that politics is a bad way to run an economy?