Difficult to believe I know but:
The graph above shows the percentage increase in the number of NEETs by region from Q2 2010 to Q2 2011. The North East of England experienced a 21% increase while the North West suffered a 28% increase. The East of England also suffered a 21% increase in NEETs. We should draw breath there. These figures in themselves require sober reflection about the state of our economy. The abolition of EMA and the tripling of tuition fees are to these young men and women hammer blows to their life chances.But the key finding of this research is that the South East of England and the South West of England have escaped a significant rise in their NEET problem. Of course, this is to be cheered. But why the regional disparity? Should we be concerned when one part of the UK excels while another languishes? At the very least one would hope that common agreement could be secured that the NE, NW and East of England require specially tragetted assistance to combat this problem.
So, what should we do about this?
The first thing of course is to recast the argument. What we have here is proof that the price of labour is roughly market clearing in the SE and SW and well above that market clearing price in the NE, NW and E. More specifically, the price of 16-24 year old labour.
This is similar to our optimal currency area problem: call it the optimal wage area problem. So, just as with our optimal currency are solution, that is, don\’t let your currency areas become too large so that they do in fact become a problem, we can see a solution to our optimal wage area problem. Don\’t let the wage area become too large.
And we do have too large a wage area. We have national wages for must public sector workers, we have a national minimum wage. Yet we have evidence that wages are above market clearing such in some areas and at or about them in others.
The solution therefore is not to have national wages nor national minimum wages. Shrink the size of the wage areas and vary the wages to suit local conditions.
Or, in short, abolish national pay bargaining and the national minimum wage.