Comments on: Good, good minimum wage

By: Meaders

Meaders — Fri, 25 Mar 2005 11:33:00 +0000

Peter - how is the income effect on wage increases a "1970s relic"?

It is possible to make some estimate of employment effects. One way to do so is by looking at the distribution of wages and employment by industry before the introduction of the minimum wage, and then comparing them afterwards. If the change in employment after the minimum wage's introduction for an industry with large numbers of below-minimum wage workers is larger and negative relative to those industries with low numbers of low-paid workers, we can conclude it has had some negative employment impact.

An old Institute of Fiscal Studies paper (called "Minimum wage, minimum impact") more-or-less did this, finding a very small negative impact for the original £3.60/hr minimum wage in the single lowest-paying industry - nursing homes. Otherwise, as the paper's title suggests, very little negative employment impact was felt, which the authors put down to the very low level of the original minimum.

(Presumably the same technique could be used for every subsequent increase of the minimum, although I haven't seen it applied.)

By: Squander Two

Squander Two — Thu, 24 Mar 2005 12:21:00 +0000

I'm with Andrew: short of re-running the lat eight years in a parallel universe, how can we possibly tell? One thing that I think the government did right was to start with an extremely low minimum wage and raise it gradually. No matter what the political policy, economic or social or whatever, gradual introduction is always better than overnight upheaval. But the very thing that makes gradual introduction good is the same thing that makes it next to impossible to measure any adverse effects — or good effects, come to that.

By: Peter

Peter — Thu, 24 Mar 2005 10:41:00 +0000

Christing hell. If someone gave me a 25-30% pay rise and cut my weekly hours by two a week (that's equivalent to an extra 2.5 weeks' annual holiday), I'd throw a party. What's with these weirdos who assume a reduction in hours is a *bad* thing?

Well, you have two explanations.

One is the 1970s relic that because they are being paid more, people on minimum wage want to work towards a certain level of income, and can get there faster, so they choose to work less even though the marginal value of those hours of labour has actually risen.

Another is that the same work is still around now as it was then, and people are still around who want to do it. But where it was once economical to employ people for x hours a week, the minimum wage appears to have made it uneconomical to employ them for longer than x-2 hours a week. That is a bad thing.

By: Blimpish

Blimpish — Thu, 24 Mar 2005 10:08:00 +0000

Matthew: probably a bit of both, is my guess – employers probably wanting to shed labour slightly, while employees happy to do so because of income effects.

"Poorest workers" is the more difficult question here. A lot of minimum wage workers are women returners and full-time students, many of whom are very far from living in penury. These tend to be in High Street retail and entertainment jobs, whereas a lot of those who are from poor households tend to be in (say) low-value manufacturing. Analysis of distributive effects has to take into account which workers are in which household income group, and whether employment growth (during good economic times, remember) was lower in one area than the other. (Not having seen the RES paper, it might well cover this – but I’ll reserve judgement ’til then.)

By: Andrew

Andrew — Thu, 24 Mar 2005 09:35:00 +0000

The implication is that the minimum wage, with no adverse effects on employment, has made Britain's poorest workers at least 30% better off

How do you know that the minimum wage has had no adverse effects on employment? The only way to know that would be to re-run the last 8 years without a minimum wage in place. The increasing rates of incapacity claimants, along with the increased levels of illegal employment would suggest the reverse is true.

By: Matthew Turner

Matthew Turner — Thu, 24 Mar 2005 08:19:00 +0000

I assume the survey goes into a lot more detail, but a) couldn't the cut in hours be voluntary, as people reach an acceptable standard of living*?, and b) if hours have been cut by x but pay has gone up by X+35%, then it implies that people were being underpaid, or that their productivity has soared.

* Clearly 'acceptable' is abused here. I find it rather shocking how low the minimum wage was in 1997 - £3.60. I had manual-labour summer jobs when I was at school, say 1993, which paid more than that.

By: dsquared

dsquared — Thu, 24 Mar 2005 06:34:00 +0000

I think "basic" in "basic hours" might be doing a bit of work here … presumably there is some treatment in the paper of what happened to overtime rates and hours?

By: C.Patel

C.Patel — Thu, 24 Mar 2005 06:13:00 +0000

They’re paid to write crap. Hell I’d love to be paid to write crap, if I had a job like that I wouldn’t stop writing in case I woke up nand found it was all a dream.