Should we increase the minimum wage?

Switzerland is considering a minimum wage equivalent to £14.81 per hour, reports The Daily Express.

As I know little of life in Switzerland, I will consider the likely impact of such a move here in the United Kingdom.

The minimum wage became law in this country back in the late 1990s, and currently stands at £6.31 per hour.  This equates to an annual pre-tax salary of around £9800 for someone normally working thirty hours each week, or roughly £11,500 for someone normally working thirty-five hours each week.

Whether or not £9800 can be regarded as a comfortable salary depends on personal circumstances.  A young adult living with parents might not need much of an income, and likewise a married person whose spouse also has an income.  Nevertheless many people find it very hard to subsist on the minimum wage.

I can remember the debate in the 1990s about whether or not Britain should have a minimum wage.  Opponents offered various arguments, one of which was that it would result in either unemployment rising or else unemployment falling only very slowly.  I accept that there is something in that argument, but all the same I have a strong objection to working people living in poverty when they could be earning a comfortable wage.

If you are earning a low salary, then it is possibly because your employer has very little money.  Alternatively it might be because your employer has lots of money but prefers to spend its money on fat cat salaries for senior staff rather than on a comfortable salary for everyone.

If the United Kingdom had a minimum wage of £14.81 per hour, then someone who normally works thirty hours per week would earn an annual pre-tax salary in the region of £23,100.  On the one hand there would be far less poverty among working people if the minimum wage were higher, but on the other hand it is hard to avoid the conclusion that a higher minimum wage would make it very hard for unemployed people to find jobs.

Opponents of a minimum wage often argue that the way to combat poverty among the poorly paid is to have a system of in-work benefits such as tax credits, but I have two objections to this.  The first is that in-work benefits cannot be relied upon as a source of income, because the government can easily cut the amount of help available to the impoverished members of the work force.  The second is that tax credits are unfair to people whose income varies throughout the year.  It is easy to end the year having received too much money in tax credits, even if you were entirely honest about your income.  Having to repay tax credits feels like a gross insult, especially when the overpayment was accidental.

Rather than increasing the minimum wage, a sensible government should look towards a more flexible approach.  Employers should be banned from paying large salaries to senior staff unless not one of their employees earn less than – let us say – 140 percent of the minimum wage.  (This would currently equate to £8.83 per hour – roughly £13,800 per annum for someone working thirty hours each week.)

Such a system would not be perfect, but would have obvious benefits.  First, it would reduce the number of working people who would live in poverty.  Second, it would not apply to companies which were genuinely short of money, and so would be unlikely to push up the level of unemployment.

Some readers might be thinking that such a system would remain unfair.  Someone who works for a company with little money might still earn a salary which makes it hard for them to subsist, and that is true.  It is highly unlikely that any one system will completely eradicate poverty.  The ideal solution is to have a system which minimises poverty.