I think I\’ll go with Sam Bowman here

The Adam Smith Institute has described the Social Market Foundation\’s suggestion that the Government should raise the minimum wage as \”ludicrous\”.

Steve Coulter, an associate fellow of the SMF and economics analyst for BBC News, said the Government should raise significantly the minimum wage. \”The Government should set out a strategy to significantly increase the national minimum wage over the medium term in order to encourage firms to upgrade the skills of their workforces, boost productivity and reduce \’low-road\’ employers\’ dependence on state wage subsidies like the working tax credit,\” he said in a report published today.

Mr Coulter said research indicates that \”higher minimum wages produce higher productivity in low-wage industries\” because employers \”substitute skilled for unskilled workers\”.

Well quite. Employers substitute skilled for unskilled workers when the price of low end workers rises. Which means that the low skilled workers en up doing nothing rather than something. We thus find ourselves staring at a rise in unemployment among the least skilled workers. You know, like that 20% or whatever it is of the young, people with no training, no observable skills, who are currently on the dole.

But Sam Bowman, head of research at the Adam Smith Institute, attacked Mr Coulter\’s proposals and said that raising the minimum wage would result in higher unemployment.

\”The proposals are ludicrous. Wages are related to people\’s productivity, and people whose labour is worth less than the minimum wage will be a net loss to employers,\” he said. \”Raising the minimum wage would price even more people out of work when jobs are already scarce, and raise labour costs for businesses. Wage controls that price unproductive people out of work are the last thing that the unemployed need – the SMF should be trying to learn from the mistakes of the 1970s, not repeating them.\”

Yes, as I say, I think I\’ll go with Sam here. For there\’s another way of putting the point that Steve Coulter is making here:

Mr Coulter said research indicates that \”higher minimum wages produce higher productivity in low-wage industries\” because employers \”substitute skilled for unskilled workers\”.

If you raise the price of something people will substitute away from it. In this case, raise the price of labour and people will substitute capital for labour: this is exactly the same statement as higher productivity. For it\’s adding capital to labour that raises productivity. Coulter doesn\’t seem to realise that the very thing he\’s arguing for is fewer jobs in total, with the unskilled left entirely outside the job market.

One comment on “I think I\’ll go with Sam Bowman here

  1. Coulter the BBC economist (eh?) has at least got the math right. Reduce labour input, keep output the same or a bit less, and hey! you’ve raised productivity. I look forward to him using the same argument for nuclear (low labour input, at least after they’re built) over windmills (high labour input for maintainance).

Leave a Reply

Name and email are required. Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>