We must protect our labour flexibility

By Tom Roberts

In the rhetoric of ‘a recovery for the many versus a recovery for the few’, Labour thinks it has found a great new avenue of attack against the Coalition government, what with the return to economic growth and disappearance of the double-dip recession from statistical history having undermined their earlier arguments for a ‘Plan B’ on spending.

It is, unfortunately, true that the Coalition government has overseen the slowest recovery on record and that the British economy remains below its pre-recession heights. It is also unfortunately true, again, that wages remain stagnant and, with the cost of living rising, the proceeds of growth have yet to be felt by most.

However, most of the proposals suggested to make this ‘recovery for the many’ a reality are more likely to harm than help ordinary people.

Raising the national minimum wage is the most popular, and dangerous, of these proposals. Worryingly, calls for a higher national minimum wage are no longer limited to the Left, with the Conservatives reportedly considering such a change too.

It is easy to understand why David Cameron and his coterie of Old Etonians, considered out of touch at best and uncaring at worst to the concerns of common people, may be seduced by a policy that appears to help the lowest paid. Yet for those at the bottom of the scale, such a policy would be disastrous.

In his recent article ‘Minimum Wage Madness’ the esteemed economist Thomas Sowell, armed with historical fact, economic principle and hard data, reveals the damage done to the young and minorities by the implementation of a federal minimum wage in the United States.

Last year, Britain’s very own Low Pay Commission suggested the national minimum wage may be in part responsible for persistently high youth unemployment in the United Kingdom, the minimum wage pricing them out of the UK’s labour market.

The Conservative party had considered regionalising public sector pay and benefits, so perhaps if it was unwilling, mindful of the political risks, to abolish the minimum wage outright, it would be prepared to settle for a regionally, rather than a nationally determined, minimum wage – much like Germany, whose unemployment rate (5.3%) is lower than ours (7.7%).

This would be preferable, to say the least, to Ed Miliband’s latest idea of ‘strengthening’ the national minimum wage in certain sectors of the economy.

Regardless, rather than raising the minimum wage, we should instead be raising the minimum tax threshold, which, as the Adam Smith Institute calculated, would lead to minimum wage workers effectively earning the ‘Living Wage’.

The Living Wage campaign as it stands, urging businesses to voluntarily pay their workers £7.45 p/h (£8.55 p/h for London-based businesses) poses no great threat to Britain’s labour market, and indeed there is research showing higher-paid workers are happier and more productive. But proposals to make the Living Wage compulsory would mean far greater unemployment than a modest rise in the minimum wage.

The furore over zero-hour contracts represented another danger to Britain’s flexible labour market. The media and some politicians painted a picture of exploited, vulnerable workers. But research by the Work Foundation revealed this to be little more than a trade unionist myth, with most workers on zero-hour contracts being managerial staff or technical workers. And a recent Labour Force Survey found only a quarter of those on zero-hour contracts wanted more work, suggesting the rest were either satisfied, or possibly wanted less work.

Thankfully, Ed Miliband has displayed a modicum of common sense and refused to support an outright ban on zero-hour contracts, recognising Britain’s flexible labour market had helped limit unemployment during the recession.

The best way to help Britain’s workers, and workless, is to protect the freedoms of the labour market, not reduce them.