Friday, June 9, 2023

Minimum wage alone cannot save the American working class

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In 1909, British politicians debated an idea they called “an experiment and a revolution”: the introduction of a minimum wage in certain sectors of the economy where the poverty wage was rife.

Winston Churchill said it was a “national evil” that every Briton “should receive less than a living wage for their most intense efforts”. Another promoter Noted these workers often relied on charities or government support to supplement their income. “A business that cannot exist without such assistance must be a completely rotten business and we should be well gotten rid of.”

Skeptics have warned that a minimum wage could render low-productivity workers unusable: “That would be cruel kindness if. . . we had to add to the suffering of these poor workers another crushing disaster – that is, to take away the only work they had.

More than a century later, a remarkably similar debate is taking place in the United States, where President-elect Joe Biden wants Congress to raise the federal minimum wage from $ 7.25 to $ 15 an hour. Mr Biden echoed Churchill last week, saying “No one working 40 hours a week should still be below the poverty line.” Critics demanded this decision would kill jobs.

It is not necessary to repeat the theoretical arguments of a century ago. Unlike the Edwardian Britons, who were really embarking on an experiment, Americans have access to a wealth of empirical evidence from around the world on the effects of minimum wage increases.

The first lesson is reassuring. The minimum wage set at 60 percent of the median wage does not appear to affect employment levels much. British government complete overview in 2019, he found no evidence of significant job losses following minimum wage increases in the UK, Germany, Hungary and several US states.

US critics are particularly concerned that a “one size fits all” rate is inappropriate for an unequal economy made up of poor regions and rich regions. Germany had a similar problem when it introduced a minimum wage of € 8.50 per hour in 2015: 15 percent of the country’s workers got a pay raise thanks to this policy, but the figure was one in three in the poorest areas. Nevertheless, there has been no significant impact on employment or unemployment, although this has led some workers from small employers to larger ones.

The second lesson from international evidence is more cautious. Some benefits of a higher minimum wage can vanish in an under-regulated labor market.

In the UK, the Conservative government has raised the minimum wage for those over 25 (dubbed the National living wage) aggressively since 2016. But implementation is underfunded and the penalties are weak. As a result, a estimate 26% of workers over 25 received less than the minimum wage in 2019, up from 20% in 2016.

Some employers have flaunted the law for all to see, for example in the city of Leicester, where the “going rate” for sewing machinists in some parts of the industry is. about £ 4 an hour. Germany has also allowed parts of its economy to run unchecked, scandal on working conditions in meat packaging.

There is also evidence that some UK employers, faced with higher hourly wage costs, have cut other labor costs. Overtime payments and weekend bonuses have been reduced. Research suggests the increase in the minimum wage has contributed to an increase in the use of zero-hour contracts, where hours can be quickly shifted up and down so that employers do not pay for downtime.

This was good news for temp agencies like Staffline, which provide “casual” hourly workers to factories and warehouses. Raising the minimum wage “increases the overall cost base for a factory,” Staffline’s managing director told investors on a call in 2018. “And one of the ways to offset that and deal with it is to increase the proportion of your workforce that is temporary because you can deploy our employees on time rather than having permanent employees. However, these temporary jobs are difficult to build stable life sure.

This is not an argument against increasing the minimum wage. But on their own, $ 15 an hour will not solve what is broken for the American working class.

Mr Biden is expected to push for a floor on terms as well as hourly wages, curbing practices that lower labor costs by increasing worker insecurity. Application (which was undermined by President Donald Trump) will also be the key. Without it, as Churchill said in 1909, “the good employer is undermined by the bad and the bad employer by the worst.”

sarah.o’connor@ft.com

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