Should the UK minimum wage be doubled, tripled or perhaps increased just a smidgen? Or maybe you think it’s too high, or even think it should be scrapped entirely, so the market can decide a fair rate.
Whether you’re on the national minimum wage or not, that minimum hourly rate affects your salary. This is because it acts like gravity preventing wages from being increased out-of-step with the minimum.
Speak to anyone who earns minimum wage or close to it and if they’re honest they will tell you that their finances are a constant struggle.
So here we’re asking the question: should the UK minimum wage be increased significantly?
Would an increase of say double have a negative impact on jobs and the economy? Let’s look at the arguments for and against…
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What Is The Minimum Wage?
Before we look at the arguments for and against a minimum wage overhaul, lets quicky remind ourselves what the UK minimum wage is.
The National Minimum Wage is the minimum pay per hour that almost all workers are entitled to.
As of April 2021 the National Living Wage, which is what the government have stupidly renamed the minimum wage for those over 23, will be £8.91.
If you are younger you will get paid a lower rate dependant on your age – which sounds like total age discrimination to us.
Their logic, but perhaps implemented poorly, is to incentivise businesses to hire young people to help get them on the career ladder, who would overwise be overlooked in favour of older people with more life experience for the same price.
However, there are fairer means to achieve this such as using government subsidies.
A 20 year-old doesn’t get a discount from his landlord because of his age and he doesn’t get his weekly food shop discounted either. If they do the same job to the same standard they should be paid the same.
Some people claim that young people live with their parents and so have lower expenses but we would argue that it should be their choice to live with parents if they wish – not forced to because of a discriminatory wage system.
Why Should The Minimum Wage Be Increased?
#1 – Not Enough To Live On
So we said that the government had stupidly renamed the minimum wage for those over age 23 to the “National Living Wage”.
The reason we suspect they have done this is for bragging rights and to exaggerate the minimum wage’s generosity. Although some would say it still falls short of being good enough.
Normally we wouldn’t care what something was called but the National Living Wage is a lie or misleading at best because it is not calculated based on what is needed to live on. As Martin Lewis said, “This is not a living wage.”
In fact, there is a completely unrelated organisation called the Living Wage Foundation that independently-calculates what people need to get by.
They refer to this as the Real Living Wage and it is currently £9.50 for the UK and £10.85 in London, which far exceeds the UK government’s statutory minimum of £8.91.
Interestingly, the Living Wage set by the Living Wage Foundation is the same for everyone over 18, so it seems like they are in agreement with us that age should not affect a person’s pay.
#2 – The Benefit System Has To Bridge The Gap
By paying people less than what is possible to live on, it forces the benefit system to bridge the gap.
This means the employer gets the benefit of cheap labour, but the British taxpayer has to pay for it due to higher social security costs.
You probably recall the free school meals debate recently that tore the country apart. Whether certain children got free meals or not was not the main issue that needed discussing in our opinion.
Free school meals may be a short-term solution to an immediate crisis, but it doesn’t deal with the long-term problem. The provision of free school meals is just a plaster for a wound that requires stitches.
There’s an argument that if those parents struggling to feed their children were paid a better wage, then perhaps there would be less of a need for the benefit system.
Though of course some parents still wouldn’t pass that money on to their kids, and there’d always be a case for some government intervention.
Higher wages might even encourage parents back to work where currently it is uneconomical to do so due to childcare costs, which often cost more than what they can earn in a job.
#3 – Businesses Are Not Economically Viable
This is really an extension to the previous point. When the benefit system has to plug the gap, then this implies that businesses are not paying high enough wages.
If a business cannot afford to pay someone the minimum that is required to live, then perhaps those businesses are not economically viable.
If raising the minimum wage would cause the collapse of a small number of businesses, then this would create a vacuum. Assuming there is still a demand for those products it would allow new and more innovative companies that can pay a fair wage to enter the market to meet that demand.
Theoretically this would replace uneconomical businesses with better ones and reduce the burden on the state.
#4 – Immigration
Most companies will pay the lowest possible wage that they think will maximise shareholder wealth. In some cases that may be slightly higher than statutory minimums if those companies believe doing so will bring added benefit that exceeds the cost.
But a low national minimum wage will always put downward pressure on salaries.
In theory, an unregulated market will set fair wages automatically, as the supply of labour will perfectly meet demand.
However, uncapped net immigration puts severe pressure on the labour supply, which in turn means people are prepared to work for less and less just to land a job.
We know that immigration is a contentious issue, so we’re only mentioning it in the context of labour supply and demand.
In 2015, the year before the Brexit vote, net immigration was 329k people. That’s a city the size of Birmingham every 3 years.
We’re not saying this is right or wrong, but we do think that high immigration comes hand in hand with the need for a higher minimum wage, to avoid a race to the bottom on wages.
Likewise, lower immigration and therefore a lower supply of labour would reduce the need for regulating labour markets with minimum wages.
We can’t have both high immigration and a low minimum wage.
Why The Minimum Wage Should Not Be Increased?
#1 – Market Economy
Employers are paying what they can get away with, which in a market economy is what that time is really worth.
Sadly, that time is probably worth less than the current minimum wage, because as we just mentioned there is severe pressure on the labour supply.
Intervening with a high minimum wage disrupts businesses from maximising wealth creation, which may impact a country negatively overall.
#2 – Loss of Jobs
Many businesses struggle to survive in the best of times. By forcing them to pay higher salaries, many businesses will take the easiest action to cut costs – reducing the work force. As former accountants we have witnessed this.
When times get tough, a business’s first reaction is always to slash the wage bill. Wages – even at the current pathetic rates – are usually the most expensive cost for a business.
It doesn’t take Sherlock Holmes to work out that this is where the axe will fall first.
#3 – Lower Investment
The increased costs to a business also means a tightening of budgets, which means lower investment and therefore fewer jobs created.
Increasing the minimum wage has ramifications that could make a bad situation worse.
#4 – Global Economy
We believe that we’re about to witness a paradigm shift in working practices, which is only beginning to dawn on businesses due to the necessity to work from home during the Corona pandemic.
Do you like working from home? Well, be careful what you wish for.
When companies realise that someone in the Cambodian jungle can do the same job as you remotely for a tiny fraction of the cost, then why bother employing you at all?
Advances in technology have changed the way we work, but recruitment hasn’t yet caught up with these changes. It will!
If you can do your same job from Hull or from Bristol, why can’t someone else do it from Bangladesh?
This possibility first occurred when businesses outsourced certain functions such as call centres abroad, but now almost any job can be outsourced. We no longer live in the UK economy, but a global one.
Sadly, our minimum wage has to reflect global pay rates, which unfortunately are much, much lower than current UK wages.
Any effort to artificially increase wages through a statutory minimum, would likely only increase the speed at which jobs are outsourced abroad. Watch this space!
#5 – Automation
What’s cheaper than outsourcing work abroad? That’s right… Automation! It’s only a matter of time before more and more jobs will be lost to automation.
One potential catalyst to automation is forcing increased labour costs on businesses.
We don’t know if they’re still moaning to this day, but London tube drivers were constantly striking over their measly pay, which is currently £55k – poor guys…
Surely this only speeds up the desire to get self-driving trains that will replace these out of touch drivers entirely – a case of cutting off your nose to spite your face.
#6 – Move Somewhere Else or Retrain
If somewhere is particularly expensive and you are struggling for income there is always the option of moving elsewhere where the living costs are cheaper.
The north is cheaper than the south, but even moving half a mile down the road can half your rent.
Likewise, many retirees move abroad to affordable countries like Thailand, where their money goes much further.
But don’t think that this is only an option for retirees. If you can take your laptop with you and do your work from anywhere, then you have a lot of options.
We get that some people don’t want to do this, but should the government have to manipulate the job market, which could do more damage than good to the economy, just to help these people out?
Alternatively, if you’re not happy with your pay you can easily retrain and do something that pays better!
What concerns us most about minimum wages is that it often becomes a target or a benchmark for businesses.
We have worked for companies where they have little desire to pay decent wages to the lower skilled staff or to those who do less marketable jobs.
Many companies will seek to just match the minimum or close to it, rather than beat it. The higher the minimum is the more likely that most wages will hover around that figure.
It doesn’t seem right to have pharmacists or other highly skilled jobs all circling around the minimum, which is what we believe would happen if it was raised too highly.
So what’s Money Unshackled’s take on it?
Andy would like to see the minimum wage raised to at least the real living wage set by the Living Wage Foundation but appreciates this make take a few years to achieve.
Ben would not like to see the wage burden raised on businesses, as they create the jobs and the opportunities. But, if a minimum wage increase coincided with cost reductions for businesses such as a cut to corporation tax, he’d be for it.
What do you think should happen to the minimum wage? Join the debate in the comments below.