Inequality and the minimum wage


I take issue with an aspect of the New Economics Foundation report discussed here by Charlotte yesterday. It apparently finds that the reason that the minimum wage can’t tackle inequality is because it has not been indexed. As the report states in the introduction, the NEF calculates that the UK could gain 7.35 trillion of social value between now and 2050, if only the UK achieved Danish standards of equality. Being a Dane I am flattered that my country is being used as a benchmark of good policy. However, there might be some misunderstandings of how the Danish system actually works.

First of all, yes Danes pay more income based taxes than in the UK, but with the tax reform in Denmark and increasing taxes in the UK this is about to level out. We also pay a higher rate of VAT, however we have a somewhat simpler system of calculating VAT since everything being sold is subject to a 25 % tax. This is a bit simpler than the extraordinary list of rules for VAT in the UK, leaving the Danish companies administrative burden at a minimum. Regarding corporate taxes, these are actually lower than in the UK, as are capital income taxes up to certain revenue.

So what about that minimum wage? You might be surprised about this but there is no minimum wage in Denmark. The minimum wage totally depends on what job you are carrying out and what convention has been negotiated between the union and the employer’s organization, i.e. more or less the market value of labour. This is also to say that most regulation in the Danish labour market is not enforced by law but by mutual conventions. Both unions and employer’s organisations agree that the government should stay out of matters concerning the labour market. So we don’t have a minimum wage, then what about the maximum wage proposed by the NEF? We don’t have that either, but we are still one of the most equal countries in the world. If equality is what NEF want and Denmark is thier model, they need to formulate some new policies.