Government lays groundwork for slashing minimum wage

The Government has instructed the Low Pay Commission to consider the impact of the minimum wage on “employment and the economy”.

The Telegraph suggests that the government is considering freezing or cutting the minimum wage if it starts to cost jobs or damage the economy. Christopher Hope reports:

The minimum wage for millions of people could have to be capped or frozen in future if it risks damaging jobs or the economy, the Government has said.

It has told the Low Pay Commission, which sets the minimum wage, that it must formally consider its impact on “employment and the economy”, before agreeing future increases.

The change, which will be written into the Commission’s new terms of reference, raises the prospect of the first ever across-the-board freeze or cut in the minimum wage for everyone if the economic uncertainty continues.

Let's leave aside, for the moment, the fact that the minimum wage has risen below inflation – and thus faced an across-the-board cut in real terms – every year since the recession. The Low Pay Commission is, it seems, perfectly capable of examining the level of the minimum wage and deciding it's too high, and has done that four years in a row.

When you look at the actual history of the minimum wage in the UK since its introduction in 1999, the key thing that stands out is how few negative effects it has had at all. As Tory MP Matthew Hancock told the Resolution Foundation last week:

The standard argument against the minimum wage is that a minimum wage would price people out of jobs. But the academic analysis doesn’t back it up. The analysis of the impact of minimum wages is one of the most studied areas of economics.

There are so many studies that economists now publish studies of studies, bringing all the data together. Two of the most recent, which together analysed 91 studies, found that “the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.”

Many reasons are cited by the study, including increased pay raising the efficiency of the workforce, and the very small impact of minimum wage increases on the total pay bill. After all, work is a team effort. Working out how much of a firm’s revenue is down to which member of the team is an imprecise art at best. Just as with high pay, the question of just rewards is important.

A phrase favoured by right-wing economists is that it is "economics 101 that the minimum wage increases unemployment". Going by the available evidence, it seems like there's a reason economics 101 is followed up by economics 201 and economics 301.

But while the information we have suggests that the Low Pay Commission has handled its task well, that doesn't mean we should ignore the possibility that a minimum wage set too high might damage employment. Indeed, that's clearly something the Low Pay Commission examines, as it explains the real-terms cuts coinciding with the recent spike in unemployment. The Government telling the Commission to "formally consider" employment and growth is just an emphasis on areas formerly implicitly covered.

But the minimum wage would have a strong rationale even if it did slight harm to growth and employment. After all, all expectations were that there would be a slight increase in unemployment after we introduced it in 1999, and although that didn't happen, it wouldn't have been the wrong decision if it did.

You can rationalise a minimum wage which slightly harms employment by asking what the role of the welfare state actually is. If it's to help people of low incomes across the board, then the key thing is to get everyone into work no matter how badly paid, and top their quality of life up to an acceptable level. If, conversely, it's a safety net to help those out of work, then there's not much to be said for the prospect of people in work still needing help. To put it in the Blairite language with which it was promoted, the minimum wage is about making work pay. If work doesn't pay, and is subsequently made unviable by a – still very low – minimum wage, then it's not the biggest hit ever taken.

Similarly, a slight hit to growth caused by the minimum wage can again work out OK, especially if redistributionist policies ensure that the paid from that hit is taken by the rich. Compare it, for instance, to tax. It is widely accepted that there is a deadweight loss to taxation – that is, the act of taxing people reduces their incomes by more than the amount of revenue received. Nonetheless, we do it, because we think it might be worth turning a pound in a rich person's pocket into 90p in the hand of someone poor. And the same is true of the minimum wage – the unambiguous winners of it are working poor people, and if the hit is taken by people richer than them, that might be a decision worth taking. Every policy has trade-offs, and requiring the minimum wage to have absolutely no negative effects is holding it to a standard no other policy could live up to.

The Government's instruction to the Low Pay Commission to do something they are already doing will hopefully remain just that. But if it becomes the start of a whispering campaign to suggest that minimum wage laws are making us all worse off, remember that they aren't; and that even if they were making some of us worse off, it might well be worth it given those whose lives they improve.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Erdogan’s purge was too big and too organised to be a mere reaction to the failed coup

There is a specific word for the melancholy of Istanbul. The city is suffering a mighty bout of something like hüzün at the moment. 

Even at the worst of times Istanbul is a beautiful city, and the Bosphorus is a remarkable stretch of sea. Turks get very irritated if you call it a river. They are right. The Bosphorus has a life and energy that a river could never equal. Spend five minutes watching the Bosphorus and you can understand why Orhan Pamuk, Turkey’s Nobel laureate for literature, became fixated by it as he grew up, tracking the movements of the ocean-going vessels, the warships and the freighters as they steamed between Asia and Europe.

I went to an Ottoman palace on the Asian side of the Bosphorus, waiting to interview the former prime minister Ahmet Davu­toglu. He was pushed out of office two months ago by President Recep Tayyip Erdogan when he appeared to be too wedded to the clauses in the Turkish constitution which say that the prime minister is the head of government and the president is a ceremonial head of state. Erdogan was happy with that when he was prime minister. But now he’s president, he wants to change the constitution. If Erdogan can win the vote in parliament he will, in effect, be rubber-stamping the reality he has created since he became president. In the days since the attempted coup, no one has had any doubt about who is the power in the land.

 

City of melancholy

The view from the Ottoman palace was magnificent. Beneath a luscious, pine-shaded garden an oil tanker plied its way towards the Black Sea. Small ferries dodged across the sea lanes. It was not, I hasten to add, Davutoglu’s private residence. It had just been borrowed, for the backdrop. But it reminded a Turkish friend of something she had heard once from the AKP, Erdogan’s ruling party: that they would not rest until they were living in the apartments with balconies and gardens overlooking the Bosphorus that had always been the preserve of the secular elite they wanted to replace.

Pamuk also writes about hüzün, the melancholy that afflicts the citizens of Istanbul. It comes, he says, from the city’s history and its decline, the foghorns on the Bosphorus, from tumbledown walls that have been ruins since the fall of the Byzantine empire, unemployed men in tea houses, covered women waiting for buses that never come, pelting rain and dark evenings: the city’s whole fabric and all the lives within it. “My starting point,” Pamuk wrote, “was the emotion that a child might feel while looking through a steamy window.”

Istanbul is suffering a mighty bout of something like hüzün at the moment. In Pamuk’s work the citizens of Istanbul take a perverse pride in hüzün. No one in Istanbul, or elsewhere in Turkey, can draw comfort from what is happening now. Erdogan’s opponents wonder what kind of future they can have in his Turkey. I think I sensed it, too, in the triumphalist crowds of Erdogan supporters that have been gathering day after day since the coup was defeated.

 

Down with the generals

Erdogan’s opponents are not downcast because the coup failed; a big reason why it did was that it had no public support. Turks know way too much about the authoritarian ways of military rule to want it back. The melancholy is because Erdogan is using the coup to entrench himself even more deeply in power. The purge looks too far-reaching, too organised and too big to have been a quick reaction to the attempt on his power. Instead it seems to be a plan that was waiting to be used.

Turkey is a deeply unhappy country. It is hard to imagine now, but when the Arab uprisings happened in 2011 it seemed to be a model for the Middle East. It had elections and an economy that worked and grew. When I asked Davutoglu around that time whether there would be a new Ottoman sphere of influence for the 21st century, he smiled modestly, denied any such ambition and went on to explain that the 2011 uprisings were the true succession to the Ottoman empire. A century of European, and then American, domination was ending. It had been a false start in Middle Eastern history. Now it was back on track. The people of the region were deciding their futures, and perhaps Turkey would have a role, almost like a big brother.

Turkey’s position – straddling east and west, facing Europe and Asia – is the key to its history and its future. It could be, should be, a rock of stability in a desperately un­stable part of the world. But it isn’t, and that is a problem for all of us.

 

Contagion of war

The coup did not come out of a clear sky. Turkey was in deep crisis before the attempt was made. Part of the problem has come from Erdogan’s divisive policies. He has led the AKP to successive election victories since it first won in 2002. But the policies of his governments have not been inclusive. As long as his supporters are happy, the president seems unconcerned about the resentment and opposition he is generating on the other side of politics.

Perhaps that was inevitable. His mission, as a political Islamist, was to change the country, to end the power of secular elites, including the army, which had been dominant since Mustafa Kemal Atatürk created modern Turkey after the collapse of the Ottoman empire. And there is also the influence of chaos and war in the Middle East. Turkey has borders with Iraq and Syria, and is deeply involved in their wars. The borders do not stop the contagion of violence. Hundreds of people have died in the past year in bomb attacks in Turkish cities, some carried out by the jihadists of so-called Islamic State, and some sent by Kurdish separatists working under the PKK.

It is a horrible mix. Erdogan might be able to deal with it better if he had used the attempted coup to try to unite Turkey. All the parliamentary parties condemned it. But instead, he has turned the power of the state against his opponents. More rough times lie ahead.

Jeremy Bowen is the BBC’s Middle East editor. He tweets @bowenbbc

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue