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16 May 2014

Seattle, Stuttgart, Switzerland – welcome to the new era of minimum wage radicalism

Across radically different economies, there are powerful, populist pushes for a higher wage floor.

By Gavin Kelly

Lift your gaze from the humdrum debate on living standards in the UK and look overseas: something seems to be stirring on the politics of low pay.

On Sunday, the Swiss vote on whether to introduce a wage floor of an almighty 22 francs (£14.90) per hour – by some way the highest in the world. Two weeks ago, the mayor of Seattle used May Day to unveil his plan for a city-wide minimum wage of $15 (nearly £9), more than double the Federal Minimum Wage, and in doing demonstrated the potency of US city-leaders in an era of a grid-locked President. Next month, the Bundestag will vote on the bill to introduce Germany’s first ever national minimum wage, of €8.50 (around £7 or $11.70), benefiting 4 million workers, after Angela Merkel’s coalition partners, the SPD, made the policy a pre-condition for the formation of a government.

These radically different economies seem to be experiencing a very similar phenomenon: powerful, populist pushes for a significantly higher wage floor. These straws in the wind all come from highly affluent societies characterised by poor wage performance, high levels of working-poverty and, to varying degrees, union movements that are on the defensive and are grasping around for new ways of influencing labour power amidst secular decline in collective bargaining.  

In Switzerland, unions have grown used to using direct democracy to complement their more traditional workplace muscle. In Germany, the share of workers covered by any sort of union agreement has plummeted over the last fifteen years and the use of the law to impose a national minimum wage, a major departure for the German system, signifies a counter-reaction to the rise of Anglo-Saxon flexibility and low-paying “mini-jobs”.

But the shift in labour’s strategy can perhaps be seen most clearly in the US where the union movement has been on its knees for over a generation. Consider two recent labour battles that some think provide an insight into the future fate of American unionism. At the start of the year a ballot in a car factory in Tennessee saw auto-workers vote against union representation despite the owner, Volkswagen, remaining resolutely neutral (highly unusual in these cases). It was a crushing blow to the auto-workers union as this was thought to be their best hope of gaining traction in the South. At the same time the service workers union in the North West of the US mobilised public opinion in order to trigger then win a referendum in support of a $15 minimum wage in the small Seattle suburb of SeaTac. Since then they’ve built on this by working with the newly elected mayor of the city to secure the commitment for $15, a move that is creating ripples in San Francisco, LA and other cities.  The local ballot box – the threat of it, as much as its actual use – rather than traditional workplace bargaining is the new forcing mechanism for tackling poverty pay.  

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Whether these chunky increases in minimum wages would result in higher unemployment is, of course, a point of contention. They have, inevitably, been met with the familiar cries of “job-killer” – that ring out every time minimum wages are aired or raised. But the very scale of some of these hikes means that the growing body of authoritative evidence demonstrating that buoyant jobs markets can successfully absorb gradual increases in minimum wages can’t just be blithely trotted out in their defence. In particular the Swiss proposal, if it gets passed, would be a huge leap, rather than a step, into the unknown.

But there is also pragmatism underneath some of the radicalism. Seattle’s $15 will be phased in slowly over three to seven years depending on employer size and whether they offer healthcare benefits. The German proposal will not be fully implemented until 2017 and will exclude apprentices and the long-term unemployed for the first six months of work. And while these wage floors may seem high to some, it is important to put them in the context of how much the typical worker earns: median hourly earnings in the Seattle area are more than $22 and will rise over time.

Why, you may ask, does the UK appear to be immune to these pressures? Well, perhaps we’re not – at least not completely. When a Conservative Chancellor decides to wink very publically at the idea of an increase in the wage-floor, and David Cameron’s former head of policy argues that now is the moment to move to a national wage floor of £8 (£10 in London), it is reasonable to assume these are not normal times. The remarkable vibrancy of the Living Wage campaign is another case in point.

Yet for all that, few Westminster-watchers would expect dramatic change anytime soon. The consensus among the policy-making class is that our Low Pay Commission (LPC) – the economists and social partners who propose the level of the minimum wage – insulates Westminster from populist calls for sweeping change. And you can see why: for years our minimum wage rose ahead of increases in typical earnings. British moderation and empiricism served us well. The German government is looking to create its own expert body akin to ours; advisors in Washington DC look with envy at our settlement.

Whitehall would do well, however, not to get complacent. Since the crisis our minimum wage has fallen a long way, back to its 2004 level. It’s hard to imagine that popular sentiment in favour of a higher wage floor won’t, to some degree at least, be reflected in next year’s election manifestos. At the least the remit of the LPC needs to be overhauled so that it has a clear responsibility to raise the minimum wage over the medium term, proactively identifying the barriers to this as well as how they might be removed. Calls to “raise the wage” – that are shaking up politics from Seattle to Stuttgart – are likely to leave their mark here too. 

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