The National Minimum Wage

Delight or Disaster?

Another of the Labour party's plans for a richer, happier Britain is the introduction of a National Minimum Wage. This plan is already in the pipeline - at present, a specially set-up committee is debating the issues of what the rate should be, but it is rumoured to be £4.00 an hour. Should this be inroduced, it's effects would be varied and far-reaching. Below are some of the argumnets presented both for and against the adoption of this monetary policy.

FOR

• The Minimum Wage will increase spending power nationally, thus boosting British businesses and creating new jobs.
• It will make financial power in society more equal.
• In association with the Welfare to Work scheme, it will help to break the unemployment trap for many people.
• If companies have to pay more for their workers, they will value these workers more highly, thus giving these workers more training and education, raising the overall level of education in the country.
• Businesses will be encouraged to become more efficient, as their outlays will increase.
• Workers will work harder, as they are being paid more for their work, thus increasing efficiency.
• Workers will be happier, thus reducing the incidence of strikes, picketing etc.
• The nation as a whole will become richer.

AGAINST

• The Minimum Wage will cause unemployment, as companies will be unable to afford to keep all their workers, thus leading to redundancies.
• Businesses will economise on labour, thus leaving the remaining workers over-worked.
• Profit margins will be damaged, and companies will be unable to expand and create new jobs.
• Managerial wages will decrease, and wage differentials will dissapear - therefore, people will feel that they do not require education etc. in order to obtain managerial jobs, as they can earn almost as much in a blue-collar job.
• Small businesses may go bankrupt, unable to afford to pay their employees.
• Multi-national companies will be discouraged from locating in the UK, as their overheads in a country with a Minimum Wage would be higher than in a country without one. Thus, there would be no new jobs created.
• The Minimum Wage is interventionist and will damage the principle of free trade.
• Prices will rise as companies try to protect their profits, so the cost of living will increase, and people will actually have very little extra money as a result of the Minimum Wage.
• Because of universal price rises, inflation will rise.

Only time will tell whether or not the Minimum Wage will be a success.

Update (5.6.98): The Low Pay Commission has set the level of the National Minimum Wage at £3.60 per hour (around $4.10 US). This is lower than had been expected. The TUC is not happy!! The wage applies only to workers over the age of 21. Naturally, there will be repercussions, such as a rise in inflation (inflation means a rise in prices. This will surely occur, as businesses, forced to pay higher wages, will have higher costs and will have to raise prices.). To counter this, the Bank of England, Britain's central bank, has raised interest rates by a quarter of a percent, to 7.5%. (When the Labour party came into power in June 1997, one of their first moves was to hand the responsibility for setting interest rates from the Treasury to the Monetary Policy Committee of the Bank of England). Another is the possibility of rising unemployment. Further updates to follow.

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You may also be interested in my other economics pages:

• The 1998 Budget
• The Welfare To Work Scheme
• The Windfall Tax

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