Wednesday, September 04, 2013

The Living Wage

Much has been paid of the report that up to 4.8 million workers are earning below the 'living wage' (currently defined as £8.55 in London and £7.45 outside). If we take it as read that the research, from the think tank the Resolution Foundation, is accurate, and that the amounts set for the living wage are about right, the obvious question is what do we do about it?

Well, there's a simple solution and then there are various shades of complicated solutions which, no doubt, will be the ones discussed by politicians and media commentators. First the simple solution: just take people on minimum wage out of the tax and NI system. You can do this by adjusting tax thresholds appropriately and then you don't need to install new systems of bureaucracy, create new classes of benefit or even track conformance. Just stop taking money away from the people who need it the most. Hell, you don't even need to employ a single addtional civil servant to make this work.

That virtue - simplicity and no additional bureaucracy - means that it's unlikely to happen. So then we look at the other options. First is the relatively simple one of raising the minimum wage. But this has some serious down-sides, like stifling job growth and putting some people out of work. And what do you do about the living wage differential between London and the rest of the UK? Do you institute regional minimum wage scales? Now you're in the realm of additional complexity for employers and having to put new systems of inspection and control in place. The net affect is to add to the costs to the state (in reality to the tax payer, including those on minimum wage...) and to increase the costs of employment.

So, what looks like a simple solution of increasing miminum wage turns into something a bit more complex and expensive. What next? Well, you leave minimum wage where it is and put into place additional benefits. Or you get employers to increase pay then then give the employers some to make the difference. Or... You get the picture - more complexity, more costs and an increasing bureaucratic burden.

Which takes us back to the really simple solution that I first mentioned. If we really believe that people should be paid this living wage, then we can increase the tax thresholds so that people on low wages can get to keep their money. Why do it any other way?

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