Written by: Richard Dunstan
Resolve not to be poor
Last week, I went along to the somewhat incongruously swanky offices of the Resolution Foundation think tank for a seminar on the National Minimum Wage (NMW). The Foundation was launching a report – entitled Minimum Wage: Maximum Impact – by Professor Alan Manning of the London School of Economics, and both Jon Cruddas MP and Polly Toynbee were there to discuss the report’s findings and options for reform.
Professor Manning is that rare thing: a brilliant academic with both feet planted firmly in the real world and an ability to communicate his thinking to people who don’t have two PhDs. In his report – a must-read for anyone interested in employment policy – he methodically presents credible statistical evidence for the NMW having raised incomes for the lowest paid, increased incentives to work, and reduced pressure on tax credits to prevent in-work poverty. And all without any clear adverse effect on employment (let alone the two million job losses predicted by the CBI and others in 1999).
Noting that the NMW has also won widespread political support, is hugely popular with the public, and seems to have had ‘more pervasive effects on wage inequality than one might expect’, Professor Manning concludes that the NMW has been ‘a resounding success’. His options for reform include introducing a premium rate for older workers (e.g. those over 30), and a higher rate for London, where the NMW has less impact than it might. But he counsels against the NMW being hiked up to ‘Living Wage’ levels.
There’s no question that the NMW has achieved a great deal, and that those responsible for its introduction (against bitter opposition) can feel justly proud. But I would feel more comfortable with it being described as a resounding success if the number of workers paid below it was not so substantial. For me, the most interesting of the many fascinating graphs in Professor Manning’s excellent report is one showing that the number of adults paid below the NMW (almost certainly an underestimate in any case) is not much less than the number paid at the NMW rate.
One reason for this, of course, is that the government spend on enforcement of the NMW is pathetically small – just £8.5 million per year. That’s just £4 for every low paid worker in the UK.
So, the ‘most successful public policy of the last 30 years’ is failing hundreds of thousands of the very workers that it is supposed to protect – the most vulnerable, most exploited workers in the labour market. And the accepted wisdom that the NMW is a ‘resounding success’ allows the Coalition Government to get away with doing nothing about this scandal, and the Labour opposition with having no (visible) policy ideas either. It suits all the main parties to forget that the NMW is supposed to be a legally-enforceable floor, below which no one should be allowed to fall.
If the NMW is a success, then that is perhaps only because expectations are too low, and the policy community is too complacent. Any credible strategy for making the NMW a genuine success must include a plan (and the resources) for much better enforcement.