The Labour party, in their manifesto have pledged to raise the minimum wage from it’s current level of about £6.30 per hour to around £8 per hour over the course of their parliament. Other bodies and parties, such as the Greens and the TUC have called for it to be made even higher, with the TUC calling for a £10/hour minimum wage. But would raising the minimum wage actually do any good?
Now as a left wing person reading this (you’re on a left wing site, I just kind of assumed it) you’re probably screaming at the sight of someone claiming to be a socialist questioning this idea, but let’s try and break it down a little bit.
Now many critics have stated that this scheme would end up costing the government a lot of money as the two million or so jobs affected by this are mainly in the public sector in areas such as health and local government. Now, Labour claim that this will in fact save money from the benefits bill, which makes sense.
There are currently millions on low incomes who have to claim benefits in order to augment their income and keep afloat. By increasing the minimum wage we put more money into those people’s pockets and less of them are required to claim benefits to get by.
However, what about the private sector? Remember we still live in a capitalist world and the private sector still employs a huge number of people and they, being the private sector, have to also make a profit. If they’re being forced to pay staff a higher hourly wage we will either see redundancies or hours cut as a means to preserve profit.
Now don’t get me wrong here, I do find it most upsetting that large companies turning a huge profit annually may cut jobs to keep increasing that profit, but that is capitalism for you in a nutshell. But that doesn’t even cover the smaller companies who already have tight margins and may be unable to pay their employees this higher wage. Jobs will be cut and prices will go up. And we haven’t even touched on the idea of zero-hours contracts.
A large number of the workforce are employed on so-called zero-hours contracts – contracts under which they have a job but aren’t guaranteed any fixed hours. Now the Labour Party have said that they will be looking to outlaw these as well. I am all for this, zero-hours contracts exploit some of our most vulnerable people who are desperately trying to get enough to live by. However, with companies now being required to guarantee a fixed hours contract and pay a higher minimum wage, it’s likely that we will see a lot of jobs cut.
But let’s imagine, for a second, that private sector employers don’t decide to cut jobs as a result of this, everyone is now on a guaranteed fixed hours contract being paid a wage of £8 an hour. Surely this is better? Fewer people claiming benefits to augment their incomes and more money kicking about, people able to buy more and that’s good for the economy, yes?
Well, not quite. In the short term it’s great; everyone has more money, they can buy more, they can set some aside or they can finally get buy without on their own without hanging onto the state as much. In the long term, though, things aren’t so brilliant.
Firstly, private companies now need to raise their prices to keep profits up (they’re now paying out more in employee salaries, remember) and in general as there is more money kicking about they can raise prices anyway. People are still being taxed at the same rate too, so their paying more in tax too.
Suddenly people are now paying more for goods and services, slightly more in taxes and some of them may even be on fewer hours as a result of small businesses cutting hours to keep afloat. Now whilst people may have more money in their pockets, it’s not ‘worth as much’ any more. We now also have more people on (what are now) low incomes having once more to rely on the state to help them out… sound familiar yet?
In the long run, whilst it might not (hopefully) do any real damage it is certainly not going to make anything appreciably better. In the short run, yeah, it might be quite nice, but in the long run it’s, at best a stunt to get votes from people on low incomes and, at worst, an idea that could result in even more unemployed and a decreased spending power of the money in your pockets.
Now I must appreciate here that I am no economist, these are just my views on the subject from my basic understanding of the topic. But there must be, in my opinion, better ways to lift people out of low income, more sustainable ways. Currently the SNP’s model of ‘modest increases’ for public spending seem to be the better set of ideas – more money in the public sector means that the public sector can afford to employ more people on better rates. It means that new projects to help lift people out of poverty can actually go ahead.
Whereas the current model of cutting public spending at every available point mean a tighter public budget, meaning less room to employ more people or raise wages, fewer public jobs overall and less money floating about in general. How Labour plan to find the money to fund the wage rises then is beyond me.
The real issue isn’t that people are on low incomes because their wages aren’t ‘high’ enough. It’s because they are either on crap contracts or unemployed altogether as a result of austerity driven cuts which have pushed people out of public jobs and money out of people’s pockets.
And until Labour are able to accept that cuts are not the best way to dig this country out of the economic mess it’s in now, we’re never going to get any lasting situation that is to the benefit of the ordinary people of these islands.