The politics of pay

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January 26, 2014 by Adam Smith


Credit: MatHampson on flickr

Can you remember your first payslip? I remember picking up mine from the windowless accounts office in the Grimsby branch of WHSmith, where I was working as a temp on the six Saturdays before Christmas. I was 16 years old, and it felt super to earn £3.50 an hour putting books and newspapers through the till over a six-hour shift. Just a couple of years earlier, my elder sister had earnt £2.50 an hour for nine hours every Sunday for staffing a local newsagent without a proper break.

Between her first job and mine, the Labour government had introduced a national minimum wage. I didn’t know anything about the politics of work, but I knew that my sister’s deal was crappy. Strolling into WHSmith, pulling on my blue check staff shirt and taking my perch at the till for £3.50 every hour felt like a really sweet deal.

The minimum wage is hailed by Labour as one of their greatest achievements. The policy has become so ingrained in our work culture that there’s no chance it could be reversed. That said, the set rate has fallen behind inflation. The Resolution Foundation, a think tank, has said this means people on the minimum wage today earn over £1,000 less than their counterparts in 2008. This affects the million or so people on the minimum wage, and shows up just how delicate the policy is. Lauding the existence of a minimum wage risks forgetting that the details must be tweaked perpetually.

The government will this year fiddle with those dials. It is set to decide on a new level of minimum wage by October. Right now, the government-appointed but independent Low Pay Commission, a group of trade unionists and economists, is looking through hundreds of studies and reports in order to recommend what the new rate should be. They should let us know their thinking by the end of February.

It is this process that the chancellor, George Osborne, fed into recently when he argued that the minimum should rise from £6.31 to £7.00 an hour. The chancellor’s intervention was no doubt designed to win him some political points from voters who have been more attracted to the opposition’s rhetoric about the ‘cost-of-living crisis’. And the LPC, which will look at far more evidence than Osborne, may agree with him. Or it may not. After sifting through surveys of companies, economic models and calculating whether certain rises mean businesses are likely to lay off staff or unfairly make them work longer, the LPC might recommend a lower level than Osborne’s favoured £7 benchmark.

And their recommendation will carry more weight than the chancellor’s.

This is why I’m excited to hear views on the minimum wage and other government interventions in labour costs, in the next sitting of the Rational Parliament. Because the studies might recommend £6.70 but Osborne, who wants to be on the side of the worker, might suggest £7. His values might say one thing, but the research evidence might say another. The chancellor might even hope for this: accepting a lower rate than the one he favours allows him to say he thinks workers should be paid more (score!) but that he really ought to follow the research evidence put forward by the economists (double score!).

In future blog posts here, I’ll cover the debate about the living wage and the basic income guarantee. We’ll be discussing all of these issues in the next sitting of the Rational Parliament (date still to be decided but sign up here for more info).

Your clerk,



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