Commenting on Ed Miliband’s proposal to tackle low pay with a five-year plan to set a higher minimum wage linked to average earnings, Director of the Adam Smith Institute, Dr. Eamonn Butler, said:
“The motive may be noble, but the policy itself is mistaken. A minimum wage helps only those who are already in work. It makes life more difficult for the very poorest, namely those who are out of work.
“When minimum wages were introduced in the UK in 1999, they did not seem to add to unemployment. But the starting rate was set very low initially and with business and employment racing ahead, the job-killing effect of a low minimum wage was hard to see. (http://www.adamsmith.org/sites/default/files/images/uploads/publications/Minimum_Wage.pdf)
“It became much easier to see after the 2008 financial crash, though. The first people that hard-pressed employers dispense with, and the last they choose to hire, are people like unskilled workers, young people who need to be trained up, women who want flexible hours, minority groups, and people on benefits who may have to learn or re-learn the habits of work.
“These are the very groups that the policy is intended to help. But the post-crash unemployment statistics, with close to a million young people out of work, show that it does exactly the opposite. Starter jobs dry up. Young people or those on benefits cannot even get on the first step of the jobs ladder.
“The minimum wage is well-meaning policy – but sadly, a wholly counterproductive one. If you really want to help the poorest, you should help them by improving their access to paid work, by cutting workplace regulation and taxes.”
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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.