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Monday, October 03, 2011

Doing the minimum

As the UK Coalition raises the minumum wage, there are claims that it may be putting off employers from taking on new people. Except that these warnings come not from the usual suspects but from the Low Pay Commission.

New rates for the minimum wage took effect on Saturday. For 18-20 year olds, the minimum wage is now £4.98, up from £4.92. For 16-17 year olds, the new rate is £3.68, up from £3.64. However, the body charged with tackling low pay has said that firms may be reluctant to create jobs by recruiting inexperienced staff because they are put off by the increased wage bill:

Tim Butcher, the commission’s chief economist told the Daily Telegraph that the body is launching a new investigation into the role the minimum wage has played in Britain’s growing youth unemployment problem.

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.

Almost 220,000 have been out of work for more than a year and some economists fear a "lost generation" of young people who never learn the habits of work and face a lifelong struggle ever to find employment.

In its official advice to the Government on this year’s pay rates, the commission raised concerns about younger workers, the first such warning since the introduction of the legal minimum rate in 1999.

"Recent research has found evidence that in difficult economic circumstances the level of the minimum wage may have had an impact on the employment of young people," the commission told ministers.

Mr Butcher said some youth unemployment was caused by the economic slowdown hurting businesses, while some of it was specifically due to a "minimum wage effect".

He said: "We don’t know what the minimum wage effect is in isolation from the recession effect. We do know recessions affect young people as employers operate first-in, first-out and look for people with experience."

Although I recognise that this is a concern for some employers surely it is simplistic to argue that it is wage rates that are driving youth unemployment. It may be true to say that recessions affect young people as employers operate first-in, first-out and look for people with experience that is no reason to build economic recovery on slave wages.

Nor will quick fixes like six month work experience before going back onto the dole hack it either. That is why the Future Jobs Fund was scrapped and why the proposed Welsh Jobs Fund will be a waste of valuable resources.

We need to raise the skills levels in young people as well as improve their literacy and numeracy. That is why investment in education is so important, and why the idea of providing training grants to private sector employers who take on young people into permanent positions can help to get youngsters into work. That would mean that when the upturn comes then this group will be in a good position to benefit from it.

This problem of under-24s not being in work has been a long term one, dating back before the last General Election. If we are to deal with it then we need long-term solutions not quick fixes like cutting the minimum wage.
If we are to look at minimum wage i can see no reason economically why public service wages should not come under closer scrutiny, or is it just the young and poor who are scrutinised?
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