The National Minimum Wage should be abolished for apprentices and under 18-year-olds in the UK to tackle persistently high youth unemployment. Fifteen years after its introduction, the current NMW framework has failed to reduce poverty and has significantly shrunk job opportunities for society’s most vulnerable: the young and unskilled.
A new report, The Minimum Wage: silver bullet or poisoned chalice?, uncovers the adverse effects resulting from continued real increases in the NMW. These include a rise in both zero-hours contracts and unpaid internships, choosier employers and increased black market employment. Plans to push for a Living Wage, as advocated yesterday by the TUC, would exacerbate these problems, pricing more young people out of an already difficult jobs market.
To reduce unemployment and alleviate poverty, the report calls for serious reform of the tax credit system. Not only are tax credits better equipped to target the poorest UK households, they would act as a wage supplement rather than a wage substitute if reformed appropriately. The government must also look to help young people. Suspending the NMW for those under 24 and out of work for more than a year would encourage skills acquisition and long-term employment.
Key findings:
- The NMW has increased significantly relative to earnings. Since its introduction in 1999, the minimum wage has increased by 75%, whilst average earnings have risen by 61% and the Retail Price Index by 53%. Even since 2008 it has risen relative to earnings (14% vs 10%).
- The current national framework is too blunt an instrument. The current system is likely to have substantial effects on private sector employment prospects in the regions. For example, in Wales, the NMW is 70% of median hourly earnings in the private sector, compared to just 42% in London.
- An increasing NMW has led to changing and often undesirable employment patterns. These include: Employers becoming choosier in recruitment, preferring more experienced workers to younger and less skilled workers; increases in both unpaid internships and zero-hour contracts; fewer students in work; and fewer training opportunities for young people as rising wages prevent firms covering the costs.
- The NMW is not a targeted poverty reduction tool. It does nothing to help nearly half of the UK households in poverty that are workless. Many of the NMW’s beneficiaries are young people living with better-off parents, students, or part-time employees who live with a spouse in full-time employment.
- The concept of a Living Wage is a straw man. Well over half of those earning below the Living Wage work part-time and many of these are young people with alternative forms of financial support. It has been estimated that 300,000 fewer young low skilled workers would be employed if the Living Wage was rolled out on a statutory basis. At a time when youth unemployment is still remarkably high, this would be a high price indeed.
Key recommendations:
- Regionalisation of the NMW from next year, taking into account regional differences in productivity.
- Abolition of the NMW for apprentices and under 18-year-olds to allow young people to gain important in-work experience.
- Suspension of the NMW for all those under the age of 24 who have been unemployed for more than one year, for the first year of employment. This would make young people more attractive to employers, who currently often favour older, more-skilled workers.
- A commitment from the government to not expand the remit of the Low Pay Commission. Its focus must be on providing acceptable wage floors without jeopardising private sector employment.
Commenting on the report, Mark Littlewood, Director General at the Institute of Economic Affairs, said: “For too long the government has been preoccupied with the idea of guaranteeing a ‘living wage’ without looking at the facts. Youth unemployment is still precariously high and the best way to combat this is to make young, unskilled workers more attractive to employers. An ever increasing minimum wage creates a wealth of unintended consequences and the result is that among the group of people the measure aims to help, very few actually feel any benefit at all.”
With Apprentices already only being paid at £2.50 an hour, they are already off the bottom end of NMW, surely?
If these people cared one iota about youth unemployment the CEOs would take a small pay cut in order that their staff get paid a living wage.
Every person who gets up, goes to work, and comes home deserves to have that day of work pay for the roof over their head, the clothes on their back, and the food in their belly. No exceptions, no excuses.
The current system is one of exploitation bordering slavery. CEOs continue to earn many multiples of what their hard-working colleagues make. It’s completely inexcusable, and the one-sided, biased nature of this article fails to address the real life ramifications of making people work all day whist paying them less than is required to live.
A living wage is just that. Enough to live. To be alive. To live in a home, to eat food, drink water, wear clothes… and anyone who would deny a worker this is literally denying them their human rights.
I can certainly see why slave labour would be “attractive to employers” but that doesn’t prevent poverty. Unemployment may drop, but employment itself only has real-world value if it brings people out of poverty. What we need is a model that addresses the root issue of unemployment – which is that people cannot provide food, clothing and shelter for their families. And that’s unacceptable.
It is the fault of government that the NMW has not worked. Labour who agreed the process and brought it in did not maintain it as they said they would and the ConDem government continued the decline, had it been maintained with inflation rises every year the NMW would be at a level that would stop poverty.
Had it kept pace with inflation the NMW hourly rate would be £19.00 an hour a decent living wage.