It is a measure of how economically illiterate the modern Labour party is that Miliband is today calling for a rise in the minimum wage thanks to his so-called “cost of living crisis”.
In an interview this morning, Miliband said “We have about 5 million people in work unable to make ends meet… and we’ve got to tackle it. The minimum wage has done a good job in tackling the worst of exploitation, but we’ve got to go further now in tackling the problem of low pay.”
His proposed solution is to link the minimum wage to average earnings, but average earnings have been stagnating. In real terms, the OBR estimates that wages won’t return to 2009-10 levels until 2018 at the earliest, thanks to inflation outstripping wage rises for the past six years. So, along with the rest of us, those on minimum wage will still see their income eroded, whether Miliband gets his wage link or not.
All of which is to some extent irrelevant. One of the main difficulties with Labour thinking is that they rarely seem to tackle the problem – any problem. Instead, they engage in a sort of political version of whack-a-mole, in which they try to squash symptoms of that problem without ever actually tackling the root cause. Inevitably whacking one symptom causes another to pop up, and so the game goes on.
The root cause of this problem is the huge influx of cheap labour that Labour (and latterly the Coalition) bestowed on us over the last decade or so. As any A-level economics student will tell you, the more of something there is on the market, the cheaper that thing becomes. If there is a particular bounty of apples one harvest, the price of apples goes down that year.
As apples, so labour. No consumer would pay over the odds for an apple if they could get a cheaper one of the same quality at the next shop along; so too no employer is going to pay his staff over the odds if someone else will do the job just as well but for less money. That has nothing to do with business owners being evil capitalists, as Miliband would like you to believe; it has everything to do with keeping costs down. Low costs are good for us consumers too, by the way – the less it costs Tesco to run their supermarkets, the less you pay for food at Tesco.
So, Labour flood the market with cheap labour in the form of open immigration, and are then surprised that wages stagnate despite the economic uplift. Their solution then ignores the root cause and simply plasters over it – with a proposed solution that will likely exacerbate the problem for some. As Mark Littlewood of the Institute for Economic Affairs commented:
“Political interference in wage setting is the wrong solution to poverty. The minimum wage is not a well-targeted measure – nearly half of those individuals in households defined as in poverty are workless. Miliband’s proposed significant increase would damage the job prospects of the young, unskilled and those in low productivity regions. A higher minimum wage will do nothing to help the most vulnerable.”
“These proposals would significantly undermine the ability of the Low Pay Commission to consider the capacity of businesses to pay a minimum wage and the wider economic environment.”
“The minimum wage was introduced to eliminate exploitative pay at the bottom end of the jobs market, taking into account the prospect that minimum wages set too high would lead to fewer job opportunities. Ed Miliband’s calls today fly in the face of this principle. He would convert the Low Pay Commission into a campaign to reduce inequality rather than an expert body on pay and conditions.”
I couldn’t have put it better myself.
Incidentally, trade unionists and socialists in Switzerland have just tried a similar ploy. The country has just held a referendum on whether to raise the minimum wage to nearly £15 an hour, which would have made it the highest worldwide. The result was a blow for socialists everywhere and a victory for the common sense of the masses: 76% voted ‘no’.