Sunday, September 24, 2006

Minimum wage and the black economy

The CBI has pointed out to the Low Pay Commission one of the three possible responses of an employer of low paid workers to a minimum wage:

1) Keep them on and accept lower profits or greater losses and the potential to become a corporate casualty of this legislation.

2) Fire them.

3) Move employment to the black economy where the minimum wage and other employment regulation do not exist. This was the option the CBI pointed out that many employers might take. Plenty will not but they are likely to lose out in competition with other, less scrupulous, operators.

The usual response to any questioning of the minimum wage is to point out that being paid very little is no fun at all. However, if you wish to help them you don't have to set up regulation which creates an incentive to either leave them unemployed or less legally protected. Instead you can introduce negative income tax style in work benefits, spread the costs of subsidising the low paid more widely and keep the poor in work.

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