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Leader: The growing consensus for a higher minimum wage

Fifteen years after its introduction, the minimum wage is an established feature of the political landscape, its abolition all but unthinkable. Should it now be increased? 

When Tony Blair first committed Labour to the introduction of a national minimum wage, the reaction from business bordered on hysteria. Higher wages, it was argued, would reduce competitiveness and destroy healthy companies. Although few economists ventured to guess exactly how many jobs would be lost, the consensus was that it would be a lot.

They were wrong. The new rules came into force in April 1999, yet unemployment rates continued to fall and – more damagingly for opponents of the policy – so did youth unemployment. Critics were reduced to claiming sheepishly that the figures would have looked even better without a minimum wage. Within a year of the policy being introduced, the Conservatives had reversed their opposition to it.

A decade and a half later, the national minimum wage is an established feature of the political landscape, its abolition all but unthinkable. The Conservative leadership, indeed, is falling over itself to support a policy it once warned would trigger economic crisis. In January, George Osborne voiced his support for an increase in the wage to £7 an hour, nearly 30 per cent higher in real terms than its value at its introduction. When Matthew Hancock, the skills minister, took to Twitter to attack Labour’s latest plans for an increase, his criticism was not that those wretched socialists were destroying British industry, but that Ed Miliband’s proposals looked tepid compared to what his own party was already offering.

Labour’s latest plan, in fairness, is both more ambitious and more complex than the one put forward by the government. Mr Miliband has declined to set a straightforward numerical target, as Mr Osborne has. Rather, a future Labour government would aim to peg the minimum wage permanently to average national earnings. Although nothing is confirmed, one oft-discussed possibility is that the minimum wage would be fixed at 60 per cent of median earnings, the standard definition of the poverty line (it stands at 54.6 per cent). It would thus become impossible to be in full-time work yet remain in statistical poverty.

To reduce the immediate impact on business, the change would be phased in over the length of a parliament. Nonetheless, it is a certainty that there will be objections to Labour’s plans. Some employees, business leaders will argue, do not generate 60 per cent of the median value: paying them more means employing them at a loss. The original minimum wage may not have resulted in corporate bankruptcies and mass job losses but this new version most assuredly will.

There are a few possible responses to such wolf-crying. One is simply to note that those executives who claim to be most concerned about bankruptcies and job losses remain remarkably reluctant to cut their own incomes to prevent them. Another is to point out that, as things stand, the government is subsidising poverty wages through the welfare system. Such a phenomenon should be an affront to taxpayers and fans of free markets alike.

More to the point, however, certain studies suggest that an increase in the minimum wage can lead to an increase in employment. This should not be surprising: while the rich can hoard an increase in their incomes, the poor are almost certain to spend it and so stimulate the economy.

Even if the doom-mongers are right, most of their predicted job losses are a few tens of thousands. Without wishing to talk down the impact on those directly affected, this is, in the national context, little more than a rounding error and in a healthy and growing economy should pass almost unnoticed. A tiny and temporary increase in unemployment may be a price worth paying for an increase in the living standards available to the majority of those on low wages.

As such, the growing political consensus that it is time for a higher minimum wage is to be welcomed. It is a rare and pleasant feeling to see the politicians engaged in a race to the top, rather than one to the bottom.

If there is a criticism to be made, it is not that the policy is unrealistic but that it is incomplete. The recent crisis of living standards is a result not simply of low wages but of high costs. And the greatest culprit by far is the exorbitant cost of housing, especially in the crowded south-east. Until the political class shows it is willing to make the tough decisions necessary to tackle that, any true increase in living standards will remain out of reach.

This article first appeared in the 21 May 2014 issue of the New Statesman, Peak Ukip

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Donald Trump vs Barack Obama: How the inauguration speeches compared

We compared the two presidents on trade, foreign affairs and climate change – so you (really, really) don't have to.

After watching Donald Trump's inaugural address, what better way to get rid of the last few dregs of hope than by comparing what he said with Barack Obama's address from 2009? 

Both thanked the previous President, with Trump calling the Obamas "magnificent", and pledged to reform Washington, but the comparison ended there. 

Here is what each of them said: 

On American jobs

Obama:

The state of our economy calls for action, bold and swift.  And we will act, not only to create new jobs, but to lay a new foundation for growth.  We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.  We'll restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost.  We will harness the sun and the winds and the soil to fuel our cars and run our factories.  And we will transform our schools and colleges and universities to meet the demands of a new age.

Trump:

For many decades we've enriched foreign industry at the expense of American industry, subsidized the armies of other countries while allowing for the very sad depletion of our military.

One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind.

Obama had a plan for growth. Trump just blames the rest of the world...

On global warming

Obama:

With old friends and former foes, we'll work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet.

Trump:

On the Middle East:

Obama:

To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West, know that your people will judge you on what you can build, not what you destroy. 

Trump:

We will re-enforce old alliances and form new ones and unite the civilized world against radical Islamic terrorism, which we will eradicate completely from the face of the earth.

On “greatness”

Obama:

In reaffirming the greatness of our nation we understand that greatness is never a given. It must be earned.

Trump:

America will start winning again, winning like never before.

 

On trade

Obama:

This is the journey we continue today.  We remain the most prosperous, powerful nation on Earth.  Our workers are no less productive than when this crisis began.  Our minds are no less inventive, our goods and services no less needed than they were last week, or last month, or last year.  Our capacity remains undiminished.  

Trump:

We must protect our borders from the ravages of other countries making our product, stealing our companies and destroying our jobs.

Protection will lead to great prosperity and strength. I will fight for you with every breath in my body, and I will never ever let you down.

Stephanie Boland is digital assistant at the New Statesman. She tweets at @stephanieboland