The case for scrapping minimum wage...

[Albion]

I have long said that minimum wage should be scrapped and recently it seems many organisations have also taken the same view.

The issue provokes quite a contradiction in my mind, I have always supported a limited government safety net for the people near the bottom of society and and have longed for an egalitarianism in Britain.

Minimum wage is a nice theory. It suggests that a person can earn no less that the set amount.
But minimum wage coupled with National Insurance contributions by the employer makes it often uneconomical for a company to employ people at all.
Minimum wage is all well and good so long as people can get a job in the first place!

In the past I have advocated two approaches:

1. No minimum wage - abolish minimum wage whilst subsidising housing and making electricty, gas and water tax-free for households earning less than £6 per hour. Also exemptions from council tax and lower National Insurance contributions.
2. Regional minimum wage. Higher minimum wages in prosperous regions like the South East whilst lower ones in areas such as South Wales and NE England. This would encourage businesses to relocate from the expensive South East and become better distributed throughout the country. The lower cost of living in the poorer areas along with subsidies and tax cuts would help the individuals cope on smaller wages.
3. Tax-free zones in the poorest areas of the North East, South Wales, Glasgow, Merseyside and Birmingham. These areas would be exempt from corporation tax and would have to provide smaller national insurance contributions for wokers amongst other benefits such as no VAT. These areas would be established for 5 years and reviewed at the end to see the effectiveness and whether such measures were still needed.
4. Government support for people starting manufacturing or farming. Lower taxes and grants and in the case of farming, new tenant farms and money towards equipment and training.

I have thought about the negative effects of minimum wage before as can be seen in some of my other posts, now there's some good news articles to go with it.

[Albion]

Firms may be reluctant to create jobs by recruiting inexperienced staff because they are put off by the increased wage bill, the Low Pay Commission has suggested.
The Commission’s intervention comes amid calls from businesses for minsters to freeze or even cut the rate to enable more young people to find work.
Conservative ministers meeting at the party’s conference are to promise a raft of measures to boost the stalling UK economy. The claims will add to pressure on the Government to go further.
New rates for the minimum wage took effect on Saturday. For 18-20 year olds, the minimum wage is now £4.98, up from £4.92. For 16-17 year olds, the new rate is £3.68, up from £3.64.
Tim Butcher, the commission’s chief economist told the Daily Telegraph that the body is launching a new investigation into the role the minimum wage has played in Britain’s growing youth unemployment problem.

Source...

[Albion]

An increase in the National Minimum Wage will make it harder for UK retailers to maintain and create jobs in the current climate, the British Retail Consortium has said.

The 2.5% rise, which came into effect on Saturday (1 October) takes the adult minimum wage up from GBP5.93 (US$9.2) an hour to GBP6.08.

Describing the move as a "disproportionate rise", the BRC said that it supports the principle of the minimum wage as a basic floor for decent pay, it had urged the Low Pay Commission to recommend a lower rise which would have been "more in line with economic realities".

According to the BRC, consumers are buying less and retail job numbers are down on a year ago. While it said that most shop workers earn above the minimum, but retail is a labour intensive sector, affected more by rising wage costs than most others.

The Low Pay Commission is considering what rise to recommend in 2012. The BRC said that retailers are calling for an increase of no more than 2.1% to "ensure the minimum wage doesn't add to the pressures on the sector. This would reflect movements in average earnings over the past year".

It is also calling for more notice of decisions to help retailers balance their budgets. Currently, businesses are told about the change six months before it happens.

"Supporting jobs in the current climate is essential. While most retail jobs pay above the minimum wage, increases inevitably push up salaries across the board and make it harder for companies to maintain and expand their workforces," said BRC director general Stephen Robertson.

"The retail sector has a long record of jobs growth but the latest figures show a fall. Retail employment cannot be taken for granted."

Source...

[Albion]

The minimum wage is pricing young people out of the market', businesses have warned.
The British Chambers of Commerce called for a freeze and then reduction in the lowest rate for young people in Britain.
They said yearly increases were making teenage workers and trainees less attractive to employers.

The advice came as the Government increased the minimum wage across the country by 2.5 per cent this weekend.
The minimum wage increased this weekend by by 6p to £4.98 for 18- to 20-year-olds, and by 4p to £3.68 for 16- and 17-year-olds, while the rate for apprentices has gone up by 10p to £2.60.
Adam Marshall, director of policy at the British Chamber of Commerce, said: 'Youth and development minimum wages for under-21s need to be frozen.
'The relentless upward march of all three rates is making employers more reticent to take on young people.'
Young people will find it harder to land a first job, businesses said, with the rates putting off firms who would typically focus on youth development.

Source...

[Aces High]

you pay peanuts....you get monkeys.

[Loddfafner]

Another major consideration in keeping a minimum wage is that it boosts overall demand. If no one can buy the goods being made, the companies will fold anyway.

I thought immigrants were the ones blocking young natives from the job market.

[Oreka Bailoak]

One of the first things you learn in upper level economics is that the minimum wage law is total baloney.

For one, it's intended to help the poor but the majority of the poor make well above minimum wage. The majority of minimum wage earners are high school/college students and middle class people (who have a spouse making lots of money). Something like 15% of the poor in poverty are actually minimum wage earners. This law doesn't target 85% of the poor.

The effect of the minimum wage is that employers hire fewer people and unemployment rises for high school/college students and the middle class who take the low paying jobs.

Minimum wage is a political gimmick to trick people who don't understand economics into thinking the government is actually helping the poor.

A better solution to help the poor would be lowering their marginal tax rate. or a Negative Income Tax.

Another major consideration in keeping a minimum wage is that it boosts overall demand. If no one can buy the goods being made, the companies will fold anyway.

Boost demand by increasing unemployment? (increasing market inefficiency).

The net effect on society is a cost- by inefficiently raising the demand for labor at a certain price above its natural level- resulting in an overall Net Loss to society! Not a gain.

I wish I could draw the graph. The net effect is clear.

[ikki]

instead scrap taxes on capitalist profits, allowing smalltime wage-earners to become capitalists and make most of their money off dividends. Or have fun, cap this at a million, if you make over a million then you pay that 50% tax on capitalist earnings.

As muscle work itself is nearly worthless to what machines do, theres no point in not replacing people with machines as far as possible and have people living off their capital.

[Oreka Bailoak]

instead scrap taxes on capitalist profits, allowing smalltime wage-earners to become capitalists and make most of their money off dividends. Or have fun, cap this at a million, if you make over a million then you pay that 50% tax on capitalist earnings.

So you want to give all the money to the government. And let the government allocate the money instead of allowing the public to invest it.

The government doesn't have a good track record for central planning. Inefficiency, terrible allocations (handing out money to friends projects, and government allied companies), price floors and ceilings everywhere- it would be a nightmare.

[Beorn]

the majority of the poor make well above minimum wage.

Really?

The majority of minimum wage earners are high school/college students and middle class people (who have a spouse making lots of money).

If that were true.

The minimum wage is great.... Sorry.

*adopts Tony the Tiger*

The minimum wage is ggggggggggggrrrreat!

The problem is the jobs are thin on the ground.

Ho-hum!