Scrap the minimum wage

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scrap-the-minimum-wage

It's time to abolish the minimum wage. Yes, I want to see pay and conditions improve for the lowest-paid workers just as much as anyone else. But it is now obvious that the minimum wage is keeping out of work those – like younger people, unskilled workers, women and ethnic minorities – who need job opportunities the most.

Of course, there is an economic downturn going on, so jobs are harder to get and unemployment is higher. But where is it highest? Yes, precisely among these groups. Despite billions spent on New Deal packages to get young people in the 16-24 age range into work, roughly a fifth of them are unemployed. Even graduates can't find work. But the really shocking thing is that almost half the black people in this age group are now unemployed. And across all age ranges, the worst hit by the downturn are young women with no qualifications, again, nearly half of them out of work.

When the minimum wage was introduced, our report Minimum Wage Costs Jobs predicted that it would cause problems for young and unskilled people and for women and minorities in particular. In the event, the minimum wage was set at an unexpectedly low level, and the economy was booming, so the effect was not clear. Now that the boom has subsided, though, it is all too clear.

This should be no surprise. For a start, it wasn't unemployed poor, unskilled, young women and minorities who campaigned for the minimum wage. It was the mostly male, mostly well-off, mostly white, fully employed trade union bosses,. They wanted to elevate the entire wage scale by raising the wages of their lowest paid members. And by definition, that means people in work, not people out of work. The groups who have been denied work by the minimum wage understand exactly the nature of low-paid work. It is not something they aim to do for very long: it is something that pays them money while giving them the experience they need to qualify for a better-paid job. Immigrants know they are often not as valuable to employers because they may not perfectly understand the culture or language; women know that, despite plenty of anti-discrimination law, employers prefer men; young people lack skills and the habits of work; too many young black people in particular are let down by failing inner-city state schools, leaving them less qualified.

We can devise any number of costly New Deal programmes to help train up those who have few work skills. But where can you get the best possible training for a job? Yes, in a job. The Adam Smith Institute is always inundated with requests from interns and school students to work a week, or a month or a summer, because they recognise the value of simply being in a work environment. We like to help young people, and we like having them in the office. But are they really worth the minimum wage to us? No; we do more to help train them than they do in useful work for us. And as far as properly commercial employers are concerned, however much they might like to help people in need of experience, they would risk being undercut by less generous competitors if they did. So they don't. And that's why, New Deal or No Deal, unemployment is soaring among young and unskilled people. It's a wicked system, and we should scrap it.