Today’s Telegraph reports on speculation that David Cameron is considering freezing the minimum wage in an attempt to “encourage employers to hire more staff”. The government is expected to make a formal announcement in two months, with the separate minimum wage rates for young people most likely to be frozen.
Although most of the left won’t accept it, there is a reasonable discussion to be had about the effect of the minimum wage on youth unemployment. The Low Pay Commission, the body that advises ministers on the subject, recently noted “evidence that in difficult economic circumstances the level of the minimum wage may have had an impact on the employment of young people”. International experience suggests that a minimum wage that is 50 per cent of the average wage is harmful to employment. But the rate for 18-20 year olds (£4.08 an hour) is currently 65 per cent of the mean wage and the rate for 16-18 year olds (£3.68) is 76 per cent.
At a time of high inflation (the annual rate of inflation is falling but prices are still rising by 3.6 per cent), freezing the minimum wage should be a last resort. But with youth unemployment running at over a million, the left can’t afford to be dogmatic. We should go wherever the evidence leads.
As the Marxist economist Chris Dillow has noted:
The fact that jobs have been created since the introduction of the minimum wage is … irrelevant. The test of the effect of the minimum wage is not: how many jobs have been created since it began? It’s: how many jobs would have been created, had we not had a minimum wage?
If the Low Pay Commission concludes that a lower minimum wage would increase youth employment, then a temporary freeze may be the lesser of two evils.