Britain's new minimum wage: Is there a hidden agenda?
By Scott Sumner
This report in the Financial Times caught my attention:
George Osborne has delivered Britain’s first radical Tory Budget for nearly 20 years, announcing huge welfare cuts offset by a higher minimum wage in a bid to create a “high wage, low tax, lower welfare” economy.
In a Budget that slowed the rate of austerity over the next five years while still seeking a surplus in the public finances by 2020, the chancellor hit buy-to-let landlords restricted non-dom tax status and increased dividend taxation for the wealthy.
He also introduced a new national living wage from next year at £7.20 an hour which will reach £9 an hour by 2020.
In other revenue raising measures, Mr Osborne said he would introduce an 8 per cent surcharge on corporation tax on profits made by banks and, in return, would gradually reduce the bank levy over the next six years and apply it only on UK balance sheets.
In the longest list of budgetary measures in many years, Mr Osborne outlined a roll back of the state that Tory activists have long desired.
Why would a Conservative government sharply increase the minimum wage, in a budget that in many other respects favored small government? The minimum wage is currently 6.50 pounds/hour, and 9 pounds/hour is almost $14/hour in US terms. Also recall that average incomes in the UK are lower than in the US. It can’t be just politics, as they just had an election, and are 5 years away from the next one.
A few months back a commenter suggested that the new German minimum wage was aimed at cutting immigration from poorer EU members such as Romania and Bulgaria. Britain is also seeing a fairly large wave of immigration from Eastern Europe, and the Conservative Party seems to be increasingly opposed to high levels of immigration. Could this be aimed at slowing immigration?
Also note that many of the Eastern European immigrants are young adults, who would be covered by the minimum wage. Britain has a set of far lower minimum wage rates for teens:
The following rates apply as of 1 October 2014:
£6.50 per hour for adult workers (21+)
£5.13 per hour for 18-to-20-year-olds
£3.79 per hour for under-18s who have finished compulsory education
£2.73 per hour for apprentices under 19 years old or 19 or over and in the first year of their apprenticeship
Those who have not yet finished compulsory education have no entitlement to NMW.
Presumably most 15 to 17 year old workers in the UK are British citizens.
And that makes me wonder about the new $15 minimum wage (being phased in) in Los Angeles. Would most of the workers priced out of the LA job market by a $15 wage be American born whites, or recent immigrants from Latin America? Maybe that’s just paranoia on my part, but consider:
The business-friendly National Center for Policy Analysis points out “the 1931 Davis-Bacon Act, requiring ‘prevailing’ wages on federally assisted construction projects, was supported by the idea that it would keep contractors from using ‘cheap colored labor’ to underbid contractors using white labor.”
African-American economist Thomas Sowell with Stanford University’s Hoover Institution gives an uncomfortable historical primer behind minimum wage laws:
“In 1925, a minimum-wage law was passed in the Canadian province of British Columbia, with the intent and effect of pricing Japanese immigrants out of jobs in the lumbering industry.
A Harvard professor of that era referred approvingly to Australia’s minimum wage law as a means to “protect the white Australian’s standard of living from the invidious competition of the colored races, particularly of the Chinese” who were willing to work for less.
In South Africa during the era of apartheid, white labor unions urged that a minimum-wage law be applied to all races, to keep black workers from taking jobs away from white unionized workers by working for less than the union pay scale.“
Thank God that apartheid has ended. Unfortunately some of its negative effects persist. Here is the New York Times:
NEWCASTLE, South Africa — The sheriff arrived at the factory here to shut it down, part of a national enforcement drive against clothing manufacturers who violate the minimum wage. But women working on the factory floor — the supposed beneficiaries of the crackdown — clambered atop cutting tables and ironing boards to raise anguished cries against it.
“Why? Why?” shouted Nokuthula Masango, 25, after the authorities carted away bolts of gaily colored fabric.
She made just $36 a week, $21 less than the minimum wage, but needed the meager pay to help support a large extended family that includes her five unemployed siblings and their children.
The women’s spontaneous protest is just one sign of how acute South Africa’s long-running unemployment crisis has become. With their own industry in ruinous decline, the victim of low-wage competition from China, and too few unskilled jobs being created in South Africa, the women feared being out of work more than getting stuck in poorly paid jobs.
PS. The Democratic surge of interest in the minimum wage occurred soon after the GOP surge of interest in immigration restriction. Let’s see if the GOP jumps on the minimum wage bandwagon.