Wednesday, January 10, 2007

A really bad reason to vote Labour

Dave 'Red Dave' Cole is enthused by Alistair Darling's promise to better enforce the minimum wage. Three things to note:

Firstly, here's Greg Mankiw with a quick round up of the strong evidence showing that the minimum wage depresses employment. Dave's response to this will be simple: "But unemployment is low". This rather misses the point that the minimum wage will do its worst in times of economic misfortune and among a vulnerable minority of the unskilled (witness the Banlieue's in France) and that its effect can, in the short term, be masked by wider changes in our economic fortunes (i.e. the beautiful economy the Tories left Labour). Both theory and practice suggest that the outcome of setting or increasing a minimum wage is to force people to live unemployed, supported by the state, instead of getting on the ladder and providing some share of their own income.

Secondly, I think that the Labour party, which takes crowds of unpaid interns to do what would, in other circumstances, be described as "work", might want to take a look at its own policies before starting a crackdown.

Finally, to respond directly to Dave's point that we can avoid "the days under the Tories when it was perfectly acceptable for people to have to work for a pound an hour". This is akin to someone from Saudi Arabia saying that adultery is perfectly acceptable in the West. It isn't but we don't ban everything that isn't perfectly acceptable if the result of a ban will be illiberal and/or counterproductive. Under the Tories few people would have worked for under a pound an hour because they could usually make more through claiming benefits. Equally, there isn't an unlimited supply of people willing to work for a pound an hour and, therefore, the idea that the minimum wage is the only thing keeping people's wages above one pound an hour is absurd; even unskilled labour is competed for by employers to a certain extent.

In the end, the minimum wage should be a mechanism to ensure greater returns to low paid work because we want these people to be better off. We can either do this by making their labour artificially expensive, the minimum wage, which punishes those employers who employ the unskilled and therefore hurts employment of those we most want to be keeping in work, or we can spread the cost more widely through a negative income tax of some kind.

1 comment:

El Dave. said...

I'll respond to your points later, but I have to comment on this:

"Secondly, I think that the Labour party, which takes crowds of unpaid interns to do what would, in other circumstances, be described as "work", might want to take a look at its own policies before starting a crackdown."

1. I am not the Labour party. Unfortunately, noone pays me any attention.

2. Sometimes, the rhetoric and the facts don't match. It's true. I confess. Labour is not perfect.

3. There was no sleaze in the Tories when John Major was running his Back to Basics campaign.

xD.