Friday, January 01, 2010

Minimum Wages In The U.K.

The Australian Fair Pay Commission's Minimum Wage Research Forum met in Melbourne on 30 and 31 October 2008. Stephen Machin summarized recent experience in the United Kingdom (in the 2008 Minimum Wage Research Forum Proceedings, Volume 1).

Minimum wages were set by industry in the United Kingdom up until 1993. The wage councils were abolished in 1993, except for the Agriculture Wages Board which continues to this day. Outside of agriculture, the UK did not have a minimum wage between 1993 and 1999. From 1999 on, the National Minimum Wage was in effect in the UK, as recommended by the UK Low Pay Commission, established in 1997 by the newly elected Labour government. Notice that the trend in employment visually appears unaffected by the introduction of the national minimum wage and subsequent increases in it. The trend appears the same before as afterwards. This seems like disconfirmatory evidence to me of the simple neoclassical model of wages and employment as determined by supply and demand functions. Some of us know that model is without theoretical foundation anyways.

Hat tip to Bill Mitchell

7 comments:

Anonymous said...

Why would you look at total employment if the minimum wage only impacts a small segment of the work force?

Blissex said...

«the minimum wage only impacts a small segment of the work force?»

You walked into this one...

If the segment is small and the impact is small too either way as endless studies show, why worry?

If it lifts the wages of all minimum wage employees and puts only a small portion of the workforce on welfare, why worry?

The real impact of the minimum wage, which is the real reason intellectually dishonest conservatives are opposed to it, is that almost its entire impact is on employer profits and sales prices (probably mostly the latter).

Only in very small part on employment; and the impact of employment is as to hours, not as people employed, which is a vital distinction.

As to the impact on profits, I think that is somewhat unfair, but tough.

It is unfair because it is in effect an unfunded mandate (like paid sickness and holidays) which should ideally be paid out of state funds, so it does not impact only employers; but it is virtually possible for the state to pay top up welfare to employees without employers getting most of the benefit by reducing wages, so there.

Anonymous said...

Blissex,

I didn't walk into anything. In no shape or form does the chart that Robert V. posted support the claim that he appears to be making.

--If it lifts the wages of all minimum wage employees and puts only a small portion of the workforce on welfare, why worry?--

If the net welfare effect of a min wage does more harm than good then I do worry about it. But I guess you don't. More interested in sticking it to business owners than the welfare of the workers? I figured.

Blissex said...

«If the net welfare effect of a min wage does more harm than good then I do worry about it.»

Note that your argument has craftily gone from a generic "if" as to either negative or positive "impacts" on a "small segment" to worrying about the case where you worry about "more harm than good" overall, and then suddenly you state that I don't worry about the latter case:

«But I guess you don't.»

To me this seems quite clever dishonesty, considering that I wrote exactly the opposite:

«If it lifts the wages of all minimum wage employees and puts only a small portion of the workforce on welfare, [ ... ] almost its entire impact is on employer profits and sales prices»

That it lifts the wages of all minimum wage workers is pretty obvious, and yourself said that it "impacts only a small segment of the workforce"; so if all minimum wage workers enjoy better hourly pay, and a very few may be working less hours if at all, that seems to me like a case that minimum wage worker welfare has increased, and any decrease to business owner and consumer welfare is at best high speculative.

«More interested in sticking it to business owners»

That sounds like a particularly stupid bit of malice, as what I wrote appears a few lines above this lie, and directly contradicts it:

«almost its entire impact is on employer profits and sales prices (probably mostly the latter). [ ... ] As to the impact on profits, I think that is somewhat unfair, but tough.
It is unfair because it is in effect an unfunded mandate (like paid sickness and holidays) which should ideally be paid out of state funds
»

As that shows very clearly to honest people I do worry about consumers (probably the biggest payers of the implicit tax) and even business owners, and far from "More interested in sticking it" to either consumers or business owners I'd rather that the pay boost to minimum wage workers came from general taxation, if that were feasible (as it is a majority decision to lift the wages of the lower paid and the whole body politic ought to pay).

BTW I meant to write "it is virtually [im]possible [ ... ]".

Robert Vienneau said...

The graph presents a summay view. Machin also looked at how many households relied on the minimum wage, at its impact on compressing the distribution of wages, and at evidence from different sectors and groups of laborers. Evidence for disemployment effects are hard to find, even for sectors and groups with lots of minimum wage workers.

Shafiq said...

I'd like to ask a couple of questions (I'm a 2nd year Economics undergrad so my economics knowledge is still quite sketchy.)

- Could the period of economic growth than followed (and preceded) the introduction of the minimum wage, have clouded any negative effects of its introduction, in terms of employment/unemployment rates?

- Wouldn't it make more sense to look at youth unemployment rates as they'd be most affected by a minimum wage, or unemployment rates for industries with a large proportion of unskilled workers?

Robert Vienneau said...

Sorry to be so slow to respond. The linked article does look at unemployment rates for industries with a large proportion of unskilled workers. Negative effects of minimum wages are hard to find.