The standard argument among those who oppose a higher minimum wage is that it makes it more expensive to employ people, which will put some organisations out of business, and cut jobs. Now a report from the Unite union is claiming exactly the opposite: that increasing the minimum wage would create 30,000 new jobs. So who is right?
The minimum wage has become a talking point, after discussions over how much it would rise to this October. There was initially speculation that George Osborne would back a rise to £7, before he announced a rise to £6.50 an hour instead. Meanwhile Labour has pledged to increase it to £8 an hour by 2020.
Unite the union commissioned a report to look at what would happen if the minimum wage was increased by £1.50 an hour from £6.31 an hour to £7.81 an hour. It claimed that it would help 4.6 million low-paid workers, and would boost employment to the tune of 30,000 jobs.
Howard Reed, director of Landman Economics and author of the report, said: "These findings show that a £1.50 per hour increase can only be a good thing for the economy. An increase would lift millions of low paid people out of poverty .... It would also create new jobs making it a case that is difficult to argue against."
Len McCluskey, general secretary of Unite, added: "We have long-argued for an immediate uplift in the minimum wage of £1.50 to get people out of poverty and get some real growth into our economy, not this phoney one fuelled by a housing bubble. This report shows that this is both affordable for employers, would in fact create, not cost jobs, and is a great deal for the national finances. It need not be put off any longer. Millions of working people have seen their income reduce by an average of £1,600 during the life of this government as they work harder but get poorer. They deserve a better deal from our country and only a lack of political will is preventing them from getting one."
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How would it create jobs?
The idea behind the jobs claim is that by paying people more per hour, the average person on minimum wage would be £1,400 a year better off. The increase would help the poorest families most, meaning that this extra income is likely to be spent.
Businesses would then employ people to serve the needs of these extra consumers: selling them food and clothes, manning the petrol station where they fill their car and so on. The people working in these new jobs would then in turn have more money, so they would have more to spend, and so the effect would be magnified as the extra pay is passed down the line.
In addition, by paying people more, it would mean more income for the Treasury - to the tune of £2.1 billion - as more workers paid more tax. This in turn would mean they have to make fewer cuts to benefits, which would mean more people on low incomes would have more money to spend - magnifying the job-creation effect still further.
The argument against
The Confederation of British Industry is supportive of the minimum wage, but (as you might expect for a body that represents employers) it has always cautioned against raising the minimum wage further than it believes wise. It has consistently argued that too many increases to the minimum wage will push wage bills too high for many organisations to stay in business - particularly smaller firms - and will result in fewer jobs rather than more.
There's also a weakness in the argument recognised by the Unite report itself. The report recognises that the change would also mean lower profits for companies, and lower payouts for shareholders. This would mean poorer returns for pension fund investors, which would eventually result in lower pensions, and less demand from older people - which could cost jobs. However, it argued that this effect will take many years to be felt, and so the report calculates that there will be no immediate effect on consumer demand. It doesn't go into what the effects would be further down the line - but they cannot be positive.
But what do you think? Are you swayed by the arguments? Is the minimum wage high enough, or does more need to be done?
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