Why are some employees paid a low wage? In the run up to the UK Budget on Wednesday, some commentators are arguing that the answer is, in effect, “because employers can get away with it”. Why not, then, the logic goes, simply raise the national minimum wage (£6.50 until October for over-21s; £6.70 thereafter) to the level of the so-called Living Wage (£7.85 outside of London; £9.15 in the capital)?
Why not, while we’re at it, cut tax credits, since they are “subsidies” to employers? After all, the argument continues, since employers can pay higher wages, tax credits allow them to pay lower wages than they otherwise would and to pocket the extra. Read more
Iain Duncan Smith has said he wants employers to pay higher wages to employees who receive tax credits. Like other critics of the current system of topping up pay, the work and pensions secretary suggests that tax credits are “subsidies” for employers who would otherwise pay employees higher wages. At the Budget next week, George Osborne, chancellor, is widely expected to announce cuts to spending on tax credits.
In his analysis, Mr Duncan Smith implicitly makes a couple of assumptions. The first is that tax credits suppress wages. This might be the case when employers are so powerful that they can keep wages down. It might also be the case if tax credits were to lead companies to spend less on capital that could help increase productivity. These are not mad ideas; the story of the minimum wage in the UK suggests that simple economic models cannot fully explain the relationship between employers and employees. Fewer jobs were lost than many economists predicted at the time. Read more
On Saturday, Jim Murphy announced he will resign as leader of the Scottish Labour party, calling Len McCluskey, general secretary of Unite union, the “kiss of death”.
On Sunday, Mr McCluskey said his union would rethink its support (it helps fund the party and many of its members are Labour affiliates) for Labour if it doesn’t show it is the “voice of ordinary working people, that they are the voice of organised labour”. Read more
Another of the Conservative manifesto proposals to appeal to “hard-working people” concerns the minimum wage. The Tories say they will legislate “so that nobody working 30 hours on the Minimum Wage pays Income Tax on what they earn”.
This sounds like a big deal. Is it?
The main national minimum wage is currently £6.50 per hour. At 30 hours per week, this equates to £10,140 per year. The Conservatives have said they want to see the minimum wage reach £8 per hour by the end of the decade. This would mean £12,480 per year for the worker on 30 hours per week. (£8*30*52 = £12,480.)
It is also a Conservative policy that the personal allowance – the amount one has to earn before paying any income tax – reach £12,500 by the end of the decade.
So, give or take £20, the new law won’t make any tangible difference at this point. Read more
In an interview with Trevor Philips, former head of the Equalities and Human Rights Commission, to be broadcast by Channel 4 next week, Nigel Farage, argues that laws against racial discrimination are no longer necessary. He also insists that the United Kingdom Independence party, which he leads, is a “colour blind” political party.
I doubt it*. But here I want to query the assumptions behind his first point: that Britain has moved on, and there is no discrimination of any note in 2015.
In an ideal world all zero-hour contracts would be of the Augie March variety: they would represent the preference of an individual for freedom and flexibility. Instead, they are too often the unwanted consequence of a low wage, insecure labour market.
Data released Wednesday morning by the Office of National Statistics tell us more about zero-hours contracts, longstanding arrangements that have been more widely used and more widely discussed in the aftermath of the last recession. The data, as well as new research from the Resolution Foundation tell us more about how many people are employed under these arrangements – and, crucially, who they might be. Read more
On Wednesday, the latest official employment data released by the Office for National Statistics showed a fall in the unemployment rate to 6.9 per cent and a rise in the growth rate of one measure of annual earnings. Strong stuff. Important stuff, too – and not only for the Bank of England and what’s left of its forward guidance policy. The relationship between wages and prices is politically important; the government has been keenly waiting for the day that pay outpaces inflation.
Is this the day? Not quite.
This is perhaps the most important chart from the ONS release. It shows the annual growth rates of CPI inflation (yellow line) and pay including (dark blue line) and excluding (light blue line) bonuses for the past five years. The latest pay data refer to the annualised growth over the three months from December to February. As you can see on the right hand side of this graph, for the first time in about four years, there is convergence: total pay (including bonuses) for employees was 1.7 per cent higher than a year earlier and CPI inflation in February was also 1.7 per cent.
Statistics released on Wednesday by the Higher Education Funding Council for England show that the number of overseas students studying at English universities has declined for the first time in 30 years. The data should raise concerns about the openness of the UK to the rest of the world. It is hard to win a “global race” if fewer people want to start on your track.
The chart below shows the number of overseas full-time undergraduate students entering an English university each year since 2005-6. Students from the rest of the EU are represented by the red bars and non-EU (“international”) students by the blue bars. The figures between the bars show annual percentage growth. Read more
The nature of low pay has changed since the introduction of the minimum wage, 15 years ago. The chart below from the report shows that extreme low pay – earning less than half the median wage – has been nearly eradicated. But low pay – earning less than two-thirds of the median wage – is as prevalent as in the late-1990s.
The RMT union leader died on Tuesday, three decades after the outbreak of the 1984 miners’ strike. Jim Pickard’s 2011 interview is the definitive article on Crow.
The chart below shows union membership levels in the UK since 1892.
On Thursday, the government published its needlessly controversial report that reviews the impact of migration on the UK labour market.
In a post yesterday, I argued that the alleged worry about publishing the new document derives from how Home Secretary Theresa May used a January 2012 report from the independent Migration Advisory Committee. The MAC report was replete with caveats and qualifications, a necessary feature of empirical analysis about migration.
Thursday’s report supports the MAC findings – not the use of the findings but the findings themselves. Read more
The rise in demand for food banks is partly related to changes to the benefits system. One of these changes is the toughening of sanctions faced by people who fail to meet one of the conditions for receipt of Jobseeker’s Allowance (a benefit for the unemployed) or Employment and Support Allowance (a benefit for the inactive). Sanctions are a necessary part of any welfare-to-work system but as currently designed they are leading to unnecessary suffering in return for no obvious benefit.
In the year from September 2012 – October 2013, 874,850 sanctions were applied to JSA claimants, a 16 per cent increase from the previous year, and more than double from five years previously. This could have reflected rising numbers of JSA claimants after the recession. But on Monday, a report released by Policy Exchange, a centre-right think tank not renowned for its love of cushy welfare, suggests that a growing share of sanctions are also issued in error.
“Welcome to the future of work, where your colleagues will be old enough to be your great-grandparents and your competitors will be algorithms.” That is the brilliant lede by Brian Groom in his article on The Future of Work, a paper published today by the UK Commission for Employment and Skills, a government-funded research body.
The report predicts the rise of a “4G workforce”, where new entrants work alongside people old enough to be their great-grandfathers. In the UK, about one-tenth of over-65s are currently working. Improvements in health, rising retirement ages and smaller pension pots mean that this share is likely to rise in the future.
This is what can happen when a politician sets a target without thinking about whether it has the power to meet it, never mind whether it is a good idea:
David Cameron, prime minister, has described his government’s “welfare” reforms as a “moral mission”. I support much of what the coalition is trying to do; for example, the effective marginal tax rate for people such as Natalie should come down under Universal Credit. (It could also have come down without a massive project but that is for another post.) Any government taking power in 2010 would have had to cut the social security budget.
But the government’s haughty self-righteousness is risible in the face of evidence of unnecessary suffering. The rhetoric around benefits and the millions who receive them is already toxic. We could do without the idea that pointing out problems is somehow treacherous. If you look at what the Christian leaders are saying, as this atheist has, they are careful to focus on the practical consequences of specific decisions. There was only one side talking the language of crusade last week and it was not the ones whose job it is to promote the idea of ascension. Read more
One of the arguments made by proponents of a higher minimum wage or a “living wage” is that it would raise more revenue for the Exchequer. Higher wages would, they argue, mean higher income tax and National Insurance receipts, and lower spending on tax credits; the state would pick up less of the employer’s wage bill. It is an argument that encourages some fiscal conservatives to support a wage hike.
But the government disagrees. Read more
Frey and Osborne’s work knowingly complements The Second Machine Age, a much-cited book by Erik Brynjolfsson and Andrew McAfee. Brynjolfsson and McAfee argue that “computers and other digital advances are doing for mental power … what the steam engine and its descendants did for physical power”.
If the various authors are right, then many of the assumptions regarding how labour markets will change are wrong. This could have major consequences for economic and social policy – and for politics more broadly. Read more
The chart below shows how the past few years have been the longest sustained period of falling real wages on record, according to official statistics. Read more
On Thursday evening, George Osborne said that “I think Britain can afford a higher minimum wage”. Reports suggest that the chancellor would like to see the rate paid to adults over 21 years-old rise to £7 per hour from £6.31 per hour, a jump that could benefit more than 3m employees, at least according to this estimate. Read more