THE BLOG

Britain's Broken Minimum Wage

25/09/2014 10:21 BST | Updated 24/11/2014 10:59 GMT

For an estimated 1.3 million workers Wednesday will be welcomed. The wage floor above which those who are 21 and over must be paid will increase from £6.31 to £6.50 per hour. With the second highest incidence of low pay amongst OECD members (defied as less than two-thirds of gross median earnings of all full-time workers) and twice the rate of some advance economies, a 19p rise will go little way towards achieving a low pay target of £8.60 per hour (in December 2013 the ONS estimated gross median hourly earnings of all full-time workers at £13.03 per hour). With the post-crisis growth in contingent work, the minimum wage is already well on its way to becoming a permanent feature of Britain's employment landscape. Coupled with labours decreasing wage share against capital, productivity outstripping real average earnings and wage increases failing to match inflation, it is perhaps not surprising that the minimum wage has become a political battleground.

Rewind to earlier in the year and Vince Cable and Iain Duncan Smith's calls for a studied increase in the minimum wage were cautiously echoed by George Osborne. At last weeks Labour party conference in Manchester Ed Miliband went further, outlining proposals for an incremental increase to £8 per hour by 2020. Arguments pro and contra each position are numerous: including the benefits of increasing aggregate demand and consumption, and the potential damaging effects increases might have on employment. With the publication of Thomas Picketty's Capital in the Twenty-First Century, the more human argument of inequality has also entered the fray. Importantly, what each camp appears to ignore is the role of the Low Pay Commission; an independent body that advises the government on the national minimum wage, in particular, its future level.

In comparison to other countries, where minimum wages are set autonomously by governments or by collective bargaining between representatives of management and labour, the establishment of the Commission after the introduction of the National Minimum Wage Act in 1998 was something of an novelty. As a body comprised of Commissioners from employer, employee and independent backgrounds (and sponsored by the Department for Business, Innovation & Skills) it appears increasingly vulnerable to external political influence. Not surprisingly, George Osborne recently reminded the media of the Commission's independence and downplayed the prospect of the government overruling its recommendations if they were not considered 'sufficient' enough.

The usurpation of the Commission in future plans for the minimum wage is no doubt testament to growing frustration with its conservatism; until Wednesday, the average increase to the minimum wage for those who are 21 and over has been 10p per year since 2010. But the Commission's caution belies a more fundamental problem: the system itself. In purely quantitative terms, those countries that provide for greater social partner involvement have far higher minimum wages than Britain. By way of example, in France a minimum wage of €9.53 per hour (roughly £7.50 per hour) has been achieved through consultation with a national bargaining committee, comprised of employers associations and trade unions.

This 'meatier' form of Low Pay Commission not only ensures fairer remuneration for France's low paid but serves the important societal function of industrial democracy. Through more closely involving the representatives of those employing or employed in low paid work, negotiations better gauge needs, with the consequent benefit of decisions having greater legitimacy. If Britain's minimum wage is to live up to New Labour's 1997 promise of delivering millions from in work poverty, change is needed. A starting point would be reforming, rather than ignoring the Low Pay Commission. The system is broken, but the fix is at hand.