Press Release: Minimum wage increase risks jobs and does little to help working poor

Commenting on the rise to the National Minimum Wage, Research Director of the Adam Smith Institute, Sam Bowman, said:

Many will welcome the first real terms cash rise to the National Minimum Wage level since 2008, but there is cause for concern – and there are better ways to help the working poor. Most high-quality academic surveys of the minimum wage find that increases lead to more unemployment, and there is some evidence to suggest that the minimum wage slows the creation of new jobs too.

Wages are typically set according to worker productivity – if for whatever reason a worker cannot produce more than the new NMW rate of £6.50/hour in value, she will simply not be able to find a job. That risks depriving her of the on-the-job skills that would boost her future productivity, and indeed there is good evidence to suggest that minimum wage laws lead to decreased lifelong earnings among the most economically vulnerable groups in society.

There are better ways of improving the welfare of the working poor that would create jobs, not threaten them. Minimum wage workers still face a high tax bill, mostly thanks to National Insurance, which personal allowance threshold rises do not affect. Indeed the government could give all full time minimum wage workers a ‘living wage’ by taking them out of tax and National Insurance, without risking jobs as the NMW does.

Supply-side liberalizations like planning reform would reduce the cost of living. And direct income transfers, either through a reformed Working Tax Credit system or, better, a fully overhauled welfare system that topped up low-paid workers’ wages automatically, would be an economically sensible way of boosting the incomes of the low paid.

We welcome the fact that the Low Pay Commission has resisted calls by politicians for massive increases in the NMW, which could be truly disastrous. Nevertheless, the NMW is a bad way of improving the welfare of the poor because of the unemployment it creates – there are better, if more politically challenging, ways to fight poverty that do not destroy jobs.

Notes to editors:

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07584 778207.


The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Ben Southwood’s criticism’s of Labour’s proposed mansion tax are featured in The Guardian and The Observer

The Adam Smith Institute’s Head of Policy, Ben Southwood, was quoted in The Guardian and The Observer, criticizing Labour’s proposed mansion tax:

The plan, which is opposed by the Tories, was derided last week by the centre-right Adam Smith Institute thinktank. Ben Southwood, the institute’s head of policy, said: “It makes no sense to create a whole new property tax system at an arbitrary £2m cut-off point; instead, council tax should be revalued and remodelled along more progressive lines, to reduce the tax burden on people in less expensive properties.”

Read the full article here.

Ben Southwood’s comments on Labour’s proposed mansion tax are featured in The Times

The Adam Smith Institute’s Head of Policy, Ben Southwood, was quoted in The Times, highlighting the problems with Labour’s proposed mansion tax:

Everyone seems to agree. The unjust and outdated way we tax property should be overhauled. There is even a consensus about what needs to be done, and it has nothing to do with Ed Miliband’s misguided mansion tax.

The solution is staring us in the face, an updated and revalued council tax — a tax whose only problem, as Ben Southwood, of the Adam Smith Institute, said this week is that “it has not been revalued since 1993”.

Read the full article here.

Sam Bowman’s criticisms of UKIP’s pledged migration cap are featured in CityAM

Research Director Sam Bowman’s comments on UKIP’s proposal to lower the UK net migration cap to 50,000 people per year for employment were featured in CityAM.

Research Director of the Adam Smith Institute (ASI) Sam Bowman said:

Ukip’s line on immigration is intellectually and morally bankrupt. Despite what Ukip claims, immigration is good for virtually everyone in society, rich and poor alike. The evidence is clear that even low-skilled immigration only hurts low-skilled native wages temporarily, and does not affect the number of jobs available to natives at all.

The reason for this is that immigrants demand services as well as supplying them: every job taken by an immigrant also means a new job will be created to supply him or her with their needs.

Bowman added that, contrary to popular belief, immigrants were a net positive to the welfare state. Because immigrants tend to be young and seeking employment, they draw few benefits from the state and have not cost the taxpayer a penny in primary or secondary education.

Furthermore, the ASI argues that immigration could play a crucial role in meeting the pensions and healthcare obligations to Britain’s rapidly aging population.

Read the full article here.

Sam Bowman’s comments on UKIP’s pledge to lower the UK net migration cap are featured in The Telegraph

Research Director Sam Bowman’s comments on UKIP’s proposal to lower the UK net migration cap to 50,000 people per year for employment were featured in The Telegraph.

Ukip has promised to cut immigration. The party’s general election manifesto will pledge to cut net immigration to 50,000 or below. Dog bites man, as they say.

What is interesting, however, is the reaction to that pledge.

The Adam Smith Institute is not happy. The ASI is a think-tank, the sort of place where free-marketeers hang out and which provided some of the intellectual fuel for Thatcherism.

Here’s what the ASI has to say about Ukip policy, and immigration in general:

“UKIP’s line on immigration is intellectually and morally bankrupt. Despite what UKIP claims, immigration is good for virtually everyone in society, rich and poor alike. The evidence is clear that even low-skilled immigration only hurts low-skilled native wages temporarily, and does not affect the number of jobs available to natives at all. The reason for this is that immigrants demand services as well as supplying them: every job taken by an immigrant also means a new job will be created to supply him or her with their needs.

“Opposing immigration is economically no different to 19th Century-style trade protectionism – the only difference is where the people we’re trading with are. Economists, left and right, agree that trade makes everyone richer, and immigration just allows us to trade with more people more often at home. One of the best things about the EU has been the guarantee of free movement between member states; to throw that away would be an economic catastrophe. If UKIP’s priority is to leave the EU, it is vital that they maintain open borders with the EU.

“Immigrants are a huge boon to the welfare state. Because they are usually young and motivated to find work, they pay more in taxes overall than they cost the state in services. As Britain gets older, with more and more retirees to provide for with pensions and healthcare, we will need more immigrants to avoid a massive debt crisis by 2050. Far from being a cost to the state, immigrants may be the only way to fulfill our obligations to the older generation.”

Read the full article here.