Deal with unemployemt - Scrap the minimum wage


With unemployment now at around 2,435,000, it is clear that despite all the talk of green shoots, they are certainly not taking root in the job market.

Unsurprisingly, those in the public sector are still doing nicely. In the three months to May the public sector saw an average pay rise of 3.7%, while average annual rate of pay rose at 2.5%. For those in the manufacturing sector that saw an average pay increase of 1.1%, this is a slap in the face.

The response to unemployment by both Lord Mandelson and George Osborne has been to attack the other for their lack of policies. Yet it is quite clear that both are at something of a loss on how to deal with unemployment beyond the introduction of equally wasteful and ineffective government initiatives. Of course Mervyn King has had an idea – namely quantitative easing – whicn I would rather he had kept to himself. The BBC reports that he is planning other stimuli. Inflation is certainly not the best way out of recession.

In truth, the only sustainable way to deal with unemployment is to remove the shackles placed upon businesses of onerous and multifarious government regulations. A good place to start would be scrapping the minimum wage. Although when we were riding high on the credit bubble, such talk of its removal would have been met with bafflement by many, now that the bubble has popped, this policy could be an honest way to work our way out of this recession.

Scrapping the minimum wage would have immediate benefits for those employers that could afford to take someone on for less than £5.73 per hour and for the workers who would rather work for less than not at all. And certainly many of those currently unemployed do indeed want to work. The statistics show that many recently unemployed are not turning to the state for handouts but are instead relying upon family and savings, a dignified mentality that this government cannot understand (it is launching an investigation into the discrepancy).

As the IEA found in its extensive analysis of the minimum wage prior to its introduction in 1999, “in a period of sustained economic growth, a minimum wage has negligible positive or negative effect; but in a period of recession a minimum wage is likely to deepen that recession by preventing labour markets from clearing. Firms will be unable to take on new employees willing to work for relatively low wages in order to escape unemployment; if firms cannot take on new employees and people cannot exit from unemployment, then the route out of recession becomes much slower and more arduous."

Scrapping the minimum wage is a policy that the opposition parties could and should immediately adopt. The economics and morality behind such a decision are entirely sound. This Prime Minister should be held to account for his decision to introduce and increase the minimum wage when he was Chancellor and the effect these decisions are now having upon the job market and in prolonging the recession.