The arguments in favour of the introduction of a living wage were always influenced by the risk of this social measure causing more harm to low-paid workers than good. As from April 1, the UK hiked the minimum wage for the over 25s to £7.20 per hour – an increase of 60 per cent of median earnings. Such hefty increases change the label on the minimum wage to that of a living wage.
It is ironic that it had to be a Conservative government to experiment so boldly with raising the cost of labour at a time when the UK is still not quite out of the woods in terms of economic growth. Most businesses are understandably still worried about the likely effects of this measure that sounds great as far as progressive social policy is concerned, but is not without risks of being counterproductive.
As expected, many UK businesses, especially the smaller ones, are reacting rather negatively to this move. Some economists still argue that “the worst case scenario is that unemployment rises because employers, instead of training the lowest skilled, simply do without them”. But the UK government believes that “the living wage will prompt employers to invest more in training and technology to make their workers more productive, breaking the UK out of its low-pay, low-productivity trap”.
I must admit that I am increasingly being convinced that the argument of the UK government is sounder than that of some economists and business leaders who would rather rely on the availability of cheap labour. Traditional economists will no doubt continue to warn against the risk of increasing prices because the minimum wage is increasing across the board. They fear that this will make some businesses less competitive and forcing them discharge people or not hire new ones.
Some businesses are trying to cope with this new progressive measure by controlling their labour costs in other ways – cutting overtime, reducing premium allowances and by automating certain processes. No one can keep business leaders from optimising their operations with efficient processes that cut on labour wastage.
Politicians... must make sure that the fabric of our society will not be weakened further by increasing social and economic unfairness
Like many others, I believe there are distinct advantages to the introduction of a living wage that in the case of the UK will see the wages of low-paid workers rise four times faster than average earnings this year. The effects of globalisation, the decline in collective bargaining, the slowdown in productivity growth, the rise in immigration and the way in which technology has deskilled some jobs have hit most severely low- skilled people who face intense competition to find a decent job that helps them support a family.
Many economists used to argue that an increase in the minimum wage above the value it creates for employers may reduce the demand for labour. Put simply, these economists argue that increases in minimum wage cost jobs. But this argument is being toned down as countries with relatively generous minimum wages have shown they still achieve respectable economic growth and low unemployment.
The concept of the social market needs to be revived at least in its more positive elements. While increased emphasis on better education will always be the fastest and most effective tool for social mobility, there will always be a large sector of workers who will enter the labour market with a low skills base. They have to compete for increasingly scarcer jobs that do not demand a highly–skilled worker to perform them.
The sad reality that most western societies have faced in the last few decades is that the rich continue to get richer while the poor get poorer. The way that wealth should be distributed may sound like an obsolete item on the agenda of today’s economic policy makers. But there is hardly a better time to bring back this thorny issue on the national agenda of business and political leaders.
The mantra that the only way to bridge the rising economic inequality is through better education is at best fallacious. A large proportion of the labour force in any country will never achieve their aspirations of being better educated for various social reasons. These people need the protection of politicians who must make sure that the fabric of our society will not be weakened further by increasing social and economic unfairness.
The bold living wage experiment of the UK government will be followed by other countries. We too may need to revisit our minimum wage policies.
johncasarwhite@yahoo.com