I have spent a bit of time looking at minimum wage rates across different countries of the world and trying to get a deeper understanding of the purpose and effect of them. It is fascinating.
If we look at the core minimum wage for those aged 21 and over, the government has always aimed for it to be two-thirds of the median wage in the country. According to some research (although not all), this target has already been achieved, which is why the government is now trying to grow the core minimum wage in line with national wage growth.
At least this means the core minimum wage should now grow only in line with wage inflation. The target of two-thirds of median wages is among the highest in the world – only Mexico sets a higher benchmark.
Economic research has long suggested that the effect of minimum wage on unemployment is low, but increasingly, studies show while this holds true in the short term, it doesn’t in the long term. No surprise there – in the short term, we have to carry on as we are, but in the long term, we will find better ways to run our businesses and shed staff.
Another proven effect of the minimum wage is that it drives inflation – and that inflation hits the very people it is intended to help the hardest of all consumer groups, because it affects the goods they buy more than anyone else. As a result, the increases in the minimum wage produce no economic benefit for those people. The government could, and should, lower the target two-thirds of median wages to 60% and let the rate drift upwards more slowly – it would help everyone.
The government, now that it has hit the target for over-21s, is aggressively pursuing growth in the 18-21 rate so that this cohort have the same wage rates and standards of living as their elders. While this is admirable, it is somewhat academic. It only works if you have a job. If you don’t have a job, then the rate is irrelevant.
Surely the government’s most important objective should be getting more young people into work. With almost one million 16 to 24-year-olds not in employment, education or training (NEETs), we face an even bigger and more worrying challenge. Our NEET rate has risen by 6% year-on-year and is now higher than both the US and Europe.
That must be the priority. If young people don’t learn to work at that age, they may never learn – and there is a serious risk that these million young people go through life without ever working. The UK cannot afford that, and it’s not good for those individuals who suffer as a result.
Hospitality is one of the key industries helping young people take their first steps into the workplace. By my calculations, we employ around 5% of the country’s 16 to 24-year-olds. When the government damages our industry, it also damages the prospects of countless young people trying to get that crucial first foothold on the working ladder. And as supermarkets move to cashless tills and the high street continues to contract, where else will young people learn their essential life skills?
In truth, the only reason the minimum wage is so politically acceptable is that it shifts the cost of supporting people on to employers rather than the government. If the government had to pay the difference, I’m sure it would be far less enthusiastic. The average age for leaving home in the UK is now 25, with more than half of 21-year-olds still living with their parents – so the economic need is not as pressing as some suggest.
So come on, government. Stop driving inflation by continually raising the minimum wage and give young people a real chance to get a job and start climbing the employment ladder. Make youth employment a primary objective and recognise that increasing the minimum wage isn’t helping – nor is making the hospitality industry suffer even more.
Alastair Scott is chief executive of S4labour and owner of Malvern Inns
