The Minimum Wage Con

4 months ago Ricardo Hylton 0

Cue the celebrations in parliament. The backslaps. The self-congratulatory fist pumps. What is all this revelry and merriment for you ask? Has someone passed legislation to build more ‘affordable’ houses for people on low incomes? Is there an initiative to make university students leave without choking on an indigestible mountain of debt? Or perhaps some clever minister decided to finally abolish the monarchy or make the prostitution legal. But you would be wrong if you thought anything as astute as these proposals would get the grubby Westminster elite jumping. The celebrations in parliament are because the government decided to raise the minimum wage by 20 ‘f***king’ pence. Yes, that’s it. 20 Pence! Oh the horror!

I was watching Prime Minister’s questions when I observed the exchange described above. Tory ministers and backbenchers were positively cheering each other in glorious ecstasy for accomplishing this 20p rise. The rise was hailed as a masterstroke by the chancellor. It really felt like a knife had been stuck in my neck. and as the blood spilled from the broken artery, my faltering mind wondered if these people inhabited the real world.

 

The Prison of the Minimum Wage

Apparently the minimum wage gives the “minimum acceptable wage” in the eyes of politicians and their economic experts, but I just don’t see how anyone can survive on such low pay. The minimum wage is in effect, the maximum wage that the wealthy have decided to pay to the poor. For that sort of wage you could afford a box room, cheap fatty food, second class travel and a few basics to survive. But barely any money will be left to save or spend how you would like. It is easy for politicians to set such low wages and call it acceptable when they are living a fairly comfortable life. I would love to see how they would make ends meet on £7 or £8 an hour. The minimum wage acts a prison cell, locking the unfortunate recipients in long term, in-work poverty. The entire concept is a con. I wonder why we’ve never heard of a ‘maximum’ wage. I wonder…

Despite the advent of this minimum wage in Britain, only one in four low earners has managed to permanently escape the prison of low pay in the past decade, according to a major study published by the Resolution Foundation. The think tank uncovered the most graphic evidence to date of the scourge of in-work poverty, in which millions working in sales jobs and the hospitality industry, cannot move up the income ladder. Fewer than one in five people working in restaurants, beauty, pubs, takeaways and catering left low pay for good in the past 10 years.

The vast majority of those affected are women and ethnic minorities. The foundation said the “strong negative link” between working part-time and escaping low pay would be a big concern for the UK’s army of 6.8m part-timers, more than three quarters of whom are women. According to the study, major barriers to pay progression include being disabled, a single parent, an older worker and the number of years spent working part-time.

The British Labour party argued in the recent election for a genuine living wage on the basis that most people in Britain living in poverty are in a job. They earn their poverty everyday.

About half of all workers in the United States who are at or below the federal minimum wage of $7.25 an hour are aged 16 to 24. Would a higher minimum wage help young people get ahead? Would it help lift families out of poverty? Or would it unintentionally have the opposite effect by dampening hiring? Economists disagree about the effects of a higher minimum wage.

 

Why do wages remain low?

The market. As a capitalist society, we value Wayne Rooney and Usain Bolt much more than a care-home worker. There are few Rooneys and a huge paid demand for them; there are many of the latter and companies can get away with paying them little. The fear is that a minimum wage encourages firms to keep more workers on the lowest band of wages.

 

Au Contraire

Is the minimum wage a good thing? It depends on who you ask. For example, famed economist Milton Friedman was opposed to a minimum wage stating that, “…people whose skills are not sufficient to justify that kind of a wage will be unemployed.”

Or perhaps you have heard this argument from the experts: the minimum wage is far too high. It artificially inflates the wages of low skill, low value individuals who deserve a lot less. Minimum wage should be scrapped. Let the free market decide.

Also, a higher minimum wage will discourage employers from hiring because it will depress their profits and even put some out of business. That will mean even less job opportunities for the poor.

Rather than complaining about low wages, they argue, take responsibility and do something about it. Work hard. Offer employers valuable skills. Or look to Donald Trump for inspiration. Set up your own business and become a wealth creator.

 

That’s All Nonsense of course

From the fear-mongering headlines marking passage of $15 statutes in New York and California in 2016, you would think nobody ever dared raise the minimum wage before.

“Raising minimum wage risky,” the Lexington (Kentucky) Herald-Leader tersely warned.

“Raising minimum wage hurts low-skill workers,” the Detroit News bluntly declared.

“Even left-leaning economists say it’s a gamble,” Vox solemnly cautioned

Nonsense! The United States have been raising the minimum wage for 78 years, and as a new study clearly reveals, 78 years of minimum-wage hikes have produced zero evidence of the “job-killing” consequences these headline writers want us to fear.

In a first-of-its-kind report, researchers at the National Employment Law Project pored over employment data from every federal increase since the minimum wage was first established, making “simple before-and-after comparisons of job-growth trends 12 months after each minimum-wage increase.”

What did the researchers find? The paper’s title says it all: “Raise Wages, Kill Jobs? Seven Decades of Historical Data Find No Correlation Between Minimum Wage Increases and Employment Levels.”

The results were clear. Of the nearly two dozen federal minimum-wage hikes since 1938, total year-over-year employment actually increased 68% of the time. In those industries most affected by the minimum wage, employment increases were even more common: 73% of the time in the retail sector, 82% in low-wage leisure and hospitality.

In fact, if anything, the data suggest that increases in the federal minimum appeared to encourage job growth and hiring.

“As those results mirror the findings of decades of more sophisticated academic research,” the authors conclude, “they provide simple confirmation that opponents’ perennial predictions of job losses are rooted in ideology, not evidence.”

But while there is no evidence that raising the minimum wage is the “risky” “gamble” that doomsayers describe, the devastating economic costs of keeping wages too low are very well documented. After decades of stagnant wages, 73 million Americans now live in households eligible for the Earned Income Tax Credit, a benefit exclusively available to the working poor.

And according to a 2014 report from the Organization for Economic Cooperation and Development, rising income inequality (and the reduced consumer demand that comes with it) knocked 6% to 9% off US economic growth over the previous two decades.

Wow. If the US economy were 9% bigger than it is today, it would have created about 11 million additional jobs. Imagine how great that would be for both American workers and businesses.

To be clear, I am not suggesting that that there’s no limit to how high we can raise the minimum wage. But minimum-wage opponents are not haggling over a number. They are not making a nuanced argument that the minimum wage might be bad for some people if it’s too high or phased in too fast or if the economy is too weak to absorb the change.

No, their core claim is that the minimum wage always hurts the whole economy — that it will always reduce growth— that it is always a sure-fire “job-killer.”

For decades, our minimum-wage debate has been dominated by ideology — the zero-sum claim that if wages go up, employment must inevitably go down — leading even many liberals to believe that the minimum wage is at best a necessary trade-off between fairness and growth.

But 78 years of evidence demonstrates that this old trickle-down model just isn’t true. On the contrary: When workers have more money, businesses have more customers and hire more workers. That is the virtuous cycle that has always described the way market economies actually work.

So if you are genuinely worried about killing jobs, the current $7.25-an-hour minimum wage is arguably far riskier than $15.

 

Pay Me like 1999

In the UK, since it was introduced in 1999, the effect on unemployment has also been lower than expected by the so-called economic experts, with unemployment only increasing because of recession in 2008. In truth, the Minimum Wage rates are still too low to provide a ‘living wage’ in certain areas of high housing costs, such as London.

 

The Case of Ritzy

Let’s take the Ritzy Cinema in Brixton, London as one example of wealthy managers and companies refusing to pay their staff fairly. Loving films and working in a cinema should not mean living on poverty wages. But that’s how it goes for the staff at the Ritzy.

John (not his real name) has worked at the Ritzy for six years. Like many of his colleagues, he loves helping to bring great films to the community. What he doesn’t love is the gritty reality of his poverty wages, particularly as he and his partner have just brought a child into the world and have been pushed out of their house by a demanding landlord. The paternity pay he received and the low rate of his wage are nowhere near enough to support a child comfortably.

Enter the scene Mooky Greidinger. Mooky is the CEO of Cineworld, the corporation behind your local Picturehouse cinemas. Mooky earned £1.2 million in 2015 – which equates to £575 per hour – and the post-tax profit of the company stood at £83.8 million. John and his colleagues are merely asking for £9.75 per hour!

The invisible aliens will not visit (and hasn’t visited since 2007) the Ritzy cinema until they pay a proper wage to these exploited workers.

Age Ain’t Nothing But A Number

Another thing that outrages me is that the minimum wage is different for certain ages what gives someone the right to pay someone more for the same amount of work just because they are older. Also what gives someone that right to say that if you are younger you do not need as much money? If I work as hard and as long as someone else we deserve equal pay no matter the age or gender.

As the invisible aliens have said before, Britain’s income squeeze is one of the most difficult political and economic issues facing the government. Many will argue that an economy that works for everyone would not be expected to be one where people are worse off at the end of the year than they were at the beginning.

The con of the minimum wage is real. The minimum wage is in effect, the maximum wage that the wealthy have decided to pay to the poor. Not unlike in Dickens’ time with workhouses and gruel, the modern day barons like Mike Ashley have decided to enrich themselves on the backs of the dispossessed. And it’s about time the people fight back.