Minimum wage: The only way is up?

On Britain’s low paid workers.

Tomorrow sees a 15 pence per hour pay rise for Britain's lowest paid workers. Of course, every penny helps, but don't expect to hear much gratitude. With RPI inflation running at 5.2 per cent, this year's VAT increase still being absorbed, tax credits being stripped back and any number of other pressures on the cost of living, this year's increase won't allow Britain's low paid to stand still, never mind move forward. The best that can be said is they will be getting poorer (given inflation) at about the same rate as those on average pay.

But before we rush to judgement on this apparently stingy increase, bear in mind that the Low Pay Commission (LPC), which oversees increases in the minimum wage, had a truly tricky job on its hands. Given anaemic growth and rising unemployment it's no surprise that they decided to err on the side of caution -- they couldn't risk making a tough labour market worse.

Whether or not precisely the right balance was struck this year, now is a good moment to consider the role the minimum wage has played in lifting living standards to date, and what more it might do in the future. Turn back the clock fifteen years and there were of course plenty of doom mongerers predicting the devastating impact on jobs if workers were unlucky enough to be afforded protection through a legal wage floor. Things turned out differently. As an authoritative study of the experience of the minimum wage to date concluded: "there is little or no evidence of any employment effects". Even those groups who were thought to be most vulnerable don't appear to have experienced a negative effect -- indeed the National Institute for Economic and Social Research recently found that employment rates are actually higher for those aged 22 (who get the full minimum wage) compared to those who are 21 (who get a lower rate), as the higher wage appears to have drawn more of them into work.

Nor can we put these findings down to the fact that the minimum wage has been pegged at rock-bottom levels. If we look at the period from its inception in 1999 up to 2010 it went up by around 65 per cent; massively outstripping CPI inflation (25 per cent) and RPI inflation (37 per cent), as well as out-performing median pay (hence the gap between those on low pay and those in the middle has fallen modestly).

At a time when most forces in our economy have been serving to squeeze the share of income going to the bottom, the minimum wage has pushed back in the other direction.

And there is evidence that the minimum wage may have benefited many people who actually get paid above the legal rate. A pay raise at the bottom can have a knock-on effect on those slightly higher up the earnings ladder, as these workers seek to protect their earnings relative to those below them. The implication is that many modestly paid workers may indirectly (and probably unknowingly) have benefited from the minimum wage.

We also know following a recent study that those firms and sectors most affected by the minimum wage have experienced significant increases in productivity as a result. Businesses don't just meekly absorb higher wages: they seek to change working patterns and investment decisions to enable them to succeed given higher costs (though admittedly larger firms find this easier than smaller ones). The Low Pay Commission was pipped to the post in arriving at this finding by a certain Sidney Webb who had precisely this insight a century ago -- armed with little more than economic intuition and precise prose, rather than today's econometric models.

In a world where few policies have a straightforwardly positive impact -- where even apparently benign measures often have malign side effects -- the minimum wage stands out as something of an exception. Its success is all the more noteworthy given that it embodies many of the attributes that, according to the current zeitgeist, make for Bad Policy. Regulation not de-regulation. National not local. Top-down not bottom up. Overseen by corporatist committee not small platoon. It has all the perfect characteristics to make it the pantomime villain in today's Whitehall.

Yet given its record, all parties feel the need to proclaim support (even if there is some sniping from the Conservative right).

Despite this apparent consensus there are still questions to ask about its future role. Over recent years the level of the minimum wage has fallen backwards relative to that of median earnings. Indeed, as the chart below shows, if we wanted the lowest paid in Britain simply to recover the ground they've lost relative to the "middle" since 2007, we'd need to see a steep climb in minimum pay over the next few years -- and all this in a period when overall wages are not expected to go up by much.

 

Whether or not this is remotely tenable obviously depends in large part on what happens in the wider economy. If we slip into another recession then calls for a rapidly rising minimum wage will be given short shrift. But if that doesn't happen, and the jobs market gradually recovers, this will itself prompt an important question: should the minimum wage really just be about maintaining a wage-floor in the difficult decade ahead, or should it seek to ensure that, at the least, Britain's low paid workers don't fall further behind everyone else? This question is likely to grow in salience.

For in an era of mounting cuts to tax credits for those in work, if the minimum wage doesn't play this wider role, it's not clear what else will.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Junior doctors’ strikes: the greatest union failure in a generation

The first wave of junior doctor contract impositions began this week. Here’s how the BMA union failed junior doctors.

In Robert Tressell’s novel, The Ragged-Trousered Philanthropists, the author ridicules the notion of work as a virtuous end per se:

“And when you are all dragging out a miserable existence, gasping for breath or dying for want of air, if one of your number suggests smashing a hole in the side of one of the gasometers, you will all fall upon him in the name of law and order.”

Tressell’s characters are subdued and eroded by the daily disgraces of working life; casualised labour, poor working conditions, debt and poverty.

Although the Junior Doctors’ dispute is a far cry from the Edwardian working-poor, the eruption of fervour from Junior Doctors during the dispute channelled similar overtones of dire working standards, systemic abuse, and a spiralling accrual of discontent at the notion of “noble” work as a reward in itself. 

While the days of union activity precipitating governmental collapse are long over, the BMA (British Medical Association) mandate for industrial action occurred in a favourable context that the trade union movement has not witnessed in decades. 

Not only did members vote overwhelmingly for industrial action with the confidence of a wider public, but as a representative of an ostensibly middle-class profession with an irreplaceable skillset, the BMA had the necessary cultural capital to make its case regularly in media print and TV – a privilege routinely denied to almost all other striking workers.

Even the Labour party, which displays parliamentary reluctance in supporting outright strike action, had key members of the leadership join protests in a spectacle inconceivable just a few years earlier under the leadership of “Red Ed”.

Despite these advantageous circumstances, the first wave of contract impositions began this week. The great failures of the BMA are entirely self-inflicted: its deference to conservative narratives, an overestimation of its own method, and woeful ignorance of the difference between a trade dispute and moralising conundrums.

These right-wing discourses have assumed various metamorphoses, but at their core rest charges of immorality and betrayal – to themselves, to the profession, and ultimately to the country. These narratives have been successfully deployed since as far back as the First World War to delegitimise strikes as immoral and “un-British” – something that has remarkably haunted mainstream left-wing and union politics for over 100 years.

Unfortunately, the BMA has inherited this doubt and suspicion. Tellingly, a direct missive from the state machinery that the BMA was “trying to topple the government” helped reinforce the same historic fears of betrayal and unpatriotic behaviour that somehow crossed a sentient threshold.

Often this led to abstract and cynical theorising such as whether doctors would return to work in the face of fantastical terrorist attacks, distracting the BMA from the trade dispute at hand.

In time, with much complicity from the BMA, direct action is slowly substituted for direct inaction with no real purpose and focus ever-shifting from the contract. The health service is superficially lamented as under-resourced and underfunded, yes, but certainly no serious plan or comment on how political factors and ideologies have contributed to its present condition.

There is little to be said by the BMA for how responsibility for welfare provision lay with government rather than individual doctors; virtually nothing on the role of austerity policies; and total silence on how neoliberal policies act as a system of corporate welfare, eliciting government action when in the direct interests of corporatism.

In place of safeguards demanded by the grassroots, there are instead vague quick-fixes. Indeed, there can be no protections for whistleblowers without recourse to definable and tested legal safeguards. There are limited incentives for compliance by employers because of atomised union representation and there can be no exposure of a failing system when workers are treated as passive objects requiring ever-greater regulation.

In many ways, the BMA exists as the archetypal “union for a union’s sake”, whose material and functional interest is largely self-intuitive. The preservation of the union as an entity is an end in itself.

Addressing conflict in a manner consistent with corporate and business frameworks, there remains at all times overarching emphasis on stability (“the BMA is the only union for doctors”), controlled compromise (“this is the best deal we can get”) and appeasement to “greater” interests (“think of the patients”). These are reiterated even when diametrically opposed to its own members or irrelevant to the trade dispute.

With great chutzpah, the BMA often moves from one impasse to the next, framing defeats as somehow in the interests of the membership. Channels of communication between hierarchy and members remain opaque, allowing decisions such as revocation of the democratic mandate for industrial action to be made with frightening informality.

Pointedly, although the BMA often appears to be doing nothing, the hierarchy is in fact continually defining the scope of choice available to members – silence equals facilitation and de facto acceptance of imposition. You don’t get a sense of cumulative unionism ready to inspire its members towards a swift and decisive victory.

The BMA has woefully wasted the potential for direct action. It has encouraged a passive and pessimistic malaise among its remaining membership and presided over the most spectacular failure of union representation in a generation.

Ahmed Wakas Khan is a junior doctor, freelance journalist and editorials lead at The Platform. He tweets @SireAhmed.