‘We came into work on a manifesto to make work pay’, Jo Stevens, Labour’s Welsh Secretary, told Radio 4 this week. ‘And that’s exactly what we’re doing.’
Well, Ms. Stevens, the Office for National Statistics (ONS) has a different story to tell. Youth unemployment is now at its highest level in 11 years. Almost one in six 16- to 24-year-olds are seeking work but are unable to find a job. This is now higher than the EU average for the first time since records began.
According to the latest figures from the ONS, the overall unemployment rate in the three months to December was at 5.2%, a five-year high.
‘The fact is, people shouldn’t be on poverty wages,’ says Stevens. So, she would rather they have no wage at all?
The UK’s jobs market is in an extraordinarily weak position. When the Government increases the cost and risk of employment, and the economic environment is already in a desperately unfavourable condition, businesses will be less able to hire. This is not groundbreaking analysis; it is very basic stuff, and yet the Government appears to be in denial that they contributed to the spike in youth unemployment at all.
Firstly, the hike in employers’ national insurance contributions to 15% made it more expensive to employ people. Indeed, it was abundantly obvious that this would hurt employment. According to a survey conducted in April last year by Censuswide, 33% of businesses with turnover above £5 million planned to reduce headcount to deal with the £25 billion rise in payroll taxes.
In addition to this, the looming threat of the Employment Rights Act also makes it significantly riskier to employ people. Gone are the days of just ‘taking a chance’ on someone. If a potential employee is not adequately qualified, perhaps they are young and inexperienced, and it is impossible to get rid of them if things don’t work out, why would you take the chance? The incentives become entirely skewed toward experienced, already qualified individuals. The very people the Government is claiming to protect are left out of the labour market.
On top of all this, the Government planned to ‘remove discriminatory age bands’ by entitling all adults to the same legal minimum wage. Young people are already being priced out of the workplace due to the higher cost of employing them, and these plans would simply, again, reduce the incentive to hire young people. According to The Times, these plans are under review.
Since Labour came into Government, the minimum wage for workers aged 21 and over rose by 6.7%. For 18–20-year-olds, it rose by 16.3%, and for 16–17-year-olds, it rose by 18%. This is an enormous increase in the cost of employing younger people, and according to the Federation of Small Businesses, 45% of small businesses that employed 16- to 20-year-olds were recruiting fewer workers because of these changes.
When the Government raises the minimum wage, businesses must pay, and they do not magically have more money following a Government announcement. So, they hire fewer people, raise their prices, or both.
In this respect, the minimum wage is a control on the price of labour. If the Government wants to correct the havoc they have caused to the British labour market, mulling over whether to apply equal minimum wage rates will not help.
The solution is a free and dynamic labour market, one in which employers and employees should be allowed to negotiate their wages freely. The minimum wage should, therefore, be entirely done away with. The unemployed youngsters would be far better off for it. Employers would be snapping them up.
Crucially, a minimum wage does not ‘make work pay’ if you are unemployed. Until the Government obtain a full grasp of the truth, that it is businesses that create jobs, it will continue to drive young people out of the labour market and, increasingly, out of the country.
