And we are surprised in what manner?

Firms may be reluctant to create jobs by recruiting inexperienced staff because they are put off by the increased wage bill, the Low Pay Commission has suggested.

Note that this is the Low Friggin Pay Commission itself, not some rabid Tory at Party Conference.

And note also that standard economic theory tells us that this will be so.

Whatever the minimum wage is, it will be most binding (note, \”most\”. If the min wage is 2p an hour then it\’s not binding on anyone at all as no one works for that or is offerend that. If it\’s £100 an hour then it binds on just about everyone) on those with the lowest and smallest skill set. Leaving aside those with physically or mentally limited skill sets (where in some cases, like I think Remploy, the min wage isn\’t actually binding) this will be the young and untried.

So, if the min wage is in fact a bind, then we\’d expect to see it in the employment prospects of these young and untrained, untried. We are seeing something happening to the job prospects of the untrained and untried, something more than what is happening to the job prospects of those with experience.

It\’s a not unreasonable conclusion therefore that the min wage is becoming a bind on their employment prospects.

What is so annoying about all this is that we told you so you fucking fools. We said that if you bring a min wage, one which continually rises above general wage inflation, then you will get to a point where it does severely crimp employment prospects. And it will be first evident among the young, untrained and untried.

So, happy now that it\’s happened?

The truth is, the minimum wage is almost certainly too high already. Worthwhile Canadian (search for it yourself!) did some work a couple of years back showing that as long as the min wage was below 40% of average (I assume, from memory, mean) earnings, then the unemployment effect was minimal. When it goes over 50%, then the effects become more substantial.

Mean hourly earnings for men are now 16.25 an hour. For women 13.73 an hour (ASHE 2010).

Part time they\’re 12.06 and 10.64 an hour.

The minimum wage at 6.08 an hour (the 2011 number) isn\’t affecting full time employment all that much and it\’s just getting into the range where it might start having substantial effects on part time employment. So far so good.

But, the youth rate is £4.98 an hour. And what are mean wage rates for this group? Again from ASHE: for 16-18 year olds, £4.84 and for 18-21 year olds, £7.62 (both male).

So, in that 18-21 year group, we\’ve a minimum wage which is 65% of the mean wage. Well into our territory where we expect to see substantial employment effects. For 16-18 year olds, it\’s 3.68……76%.

Are we seeing substantial emplouyment effects? Well, certainly, all the awailin\’ about NEETS seems to show that we are.

And you know what kiddies? We fucking told you so.

Official figures last month showed that almost 1 million of the 2.5 million people officially counted as unemployed in Britain are aged between 16 and 24.

 

5 comments on “And we are surprised in what manner?

  1. Tim,

    I agree with what you are saying.
    One question if employers NIC for wages below £10 ph was zero would the minimum wage still be too high?

  2. Surely not only the minimum wage, but the mimimum benefit has an effect on unemployment. If a person is on jobseekers +housing benefit, is not the price at which a person is prepared to sell their labour artificially raised to the point where the possibility of a job paying enough to make it worth working is remote?

  3. As a rather more benign punishment for espousing obviously stupid legislation than being garrotted in the forum, then maybe making these people exist on tuppence a day might be a good idea.

  4. I am a big fan of minimum wages because I do not see why income and capital taxes should be raised, distorting the economy all round, to subsidise employers paying poverty wages.

    But I agree with you on this. If there is evidence that the minimum wage is seriously cutting jobs for young people ( ie all-economy price elasticity of labour demand is high in this sector of the market) then it should be reduced, if necessary to near zero, provided that this is tied in with benefit entitlement at this age.

    But I am afraid that cutting minimum pay for young people and perhaps cutting benefits at the same time is unlikely to be a popular policy with young voters.

    As with many other sensible policies, it therefore needs politicians with the courage and determination to persuade people in public debate that this makes sense before taking action. Sadly, I would not bet on this.

    If there is any benefit in having an “independent” body to recommend minimum wages, it is that it can afford to do this tough job. But it doesn’t. The wrong people nearly always get put in charge (ie in this case people committed to minimum pay on fairness grounds).

  5. In Australia the minimum wage is 10 quid an hour (15 Australian dollars), and their unemployment is lower than ours. In fact, if you earnt the Aussie min wage, you’d be better off than most British people.

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