Wednesday 16 November 2011

The Minimum Wage is Not Red Tape

Dominic Raab framed his Conservative Home article today with this statement: “Gloomy unemployment figures out today show unemployment at 8.3% and, more disturbing still, youth unemployment at 21.9%.” 

Aside from using the word unemployment three times in one sentence, what else is wrong with this picture?

The answer lies in Raab suggests as a means by which to address the problems he cites. Here are some of the main ideas he puts forward for young people out of work today:

- Allow small businesses to pay below the minimum wage for 16-21 year olds
- Make it easier for employers to fire people
- Abolish the need to employers to invest in their workforce and offer training

These are just three of the ideas from the Centre for Policy Studies’ ‘Escaping The Strait Jacket – Ten regulatory reforms to create jobs’ published today. This publication looks at how red tape is holding back the UK economy.

Let us be very clear about something. The minimum wage is not a form of red tape that holds back growth in the economy. The minimum wage is one of the finest achievements by a Labour government that sought to raise living standards to build a better economy and society. The minimum wage is one of the most important policies for ensuring that work really pays.

Furthermore, employment laws are as such that it is already easier to fire someone in the UK than it is in the rest of Europe. Who would benefit from changes our system further in favour of employers? Working for less pay with less security is a horrible suggestion for solving our growth and jobs problems. Add in ideas like lessening investment in training and we have a viscous cycle of low-paid, low skilled workers with insecure jobs.

The sum total of all this policy is jobless growth. This is the kind of recovery achieved by the policies Raab is advocating.

The dividing lines with the solutions offered by the centre-left speak volumes about the space between the two main parties today. From the 5 point plan spearheaded by Ed Miliband & Ed Balls, number one offers a much better suggestion:

A £2 billion tax on bank bonuses. This would fund the building of 25,000 homes and 100,000 jobs for young people. This approach takes money from the sector in the economy that enjoys some of the highest pay and if banks won’t lend to small businesses, it is right and legitimate that we tax them to invest in jobs and growth.

The dividing line between Tory and Labour policy could not be illustrated any clearer than in Ed Miliband’s consistent support for a national living wage. The living wage would see living standards rise at a time when those in the middle are feeling the pinch of rising prices. This would truly increase the will to work by increasing the rewards of it. Raab offers instead to lower wages, and in turn lower living standards. 

There is plenty more depth and detail to the economic alternative emerging from Labour. The five point plan includes reversing the VAT rise and bringing forward long-term investment projects to stimulate the economy. An approach that top economists agree is now necessary to avoid a decade of high unemployment and slow growth. It is exactly this kind of economic alternative that we’ll be discussing in depth at this year’s Fabian New Year Conference. Make sure you’re there to be part of the debate.

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