Tuesday, February 16, 2010

A Different Angle On Minimum Wages

There is a consensus in modern Western civilisation, that there should be a minimum wage that anyone can reasonably be expected to work for. Moreover, there is generally a consistency of approach from place to place on how to calculate it. The benchmark is the national average wage. The fraction of that average that is taken as the minimum very much reflects the respective societies. In fairly egalitarian parts of the world, such as North-West Europe and Australasia it is around half, while nations more comfortable with extreme contrasts between rich and poor may set it at a third or a quarter.

Jersey takes a slightly lower fraction than the mainland UK as its chosen level. This is not unreasonable, as the average is not only skewed upwards by the relatively high proportion of well-paid professional jobs, but also inflated by the use of the mathematically inappropriate mean for the official average, instead of the usual median. However, there was a long-term strategy to progressively increase from 40% to 45%. The proposals from Deputies Pitman and Southern previously posted on this blog seek to insert suitable figures into the formula to continue, or at least defend the progress.

Personally, however, I am unconvinced that the methodology really approaches the issue from the right direction. There is a strand of left-wing thought that holds wealth distribution to be an end in itself, but it is too rooted in the primitive psychology of envy to lay credible claim to the moral high ground. Surely, the proper and decent basis of any scheme for minimum incomes is to apply our equally primitive, but far more decent human urge for looking after our weak and needy to the alleviation and preferable elimination of poverty.

The basic costs of an austerely sufficient lifestyle in our local economy are already calculated with some care for the purposes of Income Support and Old Age Pensions. Income Support then provides benefit to make earned income, if any, up to a minimum acceptable for the individual's general circumstances and responsibilities. A single adult will receive £92.12 to live on, for example, plus £106.75 for renting a bedsit. A total of £198.87 is therefore reckoned to be the bare minimum for independent existence without undue poverty, at current local cost of living.

Guaranteeing that minimum does bring the catch, that a £199pw full-time wage would attract no help, and yet bring in only 13p more for a whole week's work than sitting idle at home on benefits. Therefore it would not be worthwhile. The solution to this “poverty trap” is to give the minimum wage a significant premium to the benefit rate. I would suggest that working full-time needs to bring in at least a third as much again as total unemployment to be a viable choice. This would be 1/30 of the basic Income Support rate, assuming as usual a 40 hour working week. ( Obviously, benefit claimants with extra claims, such as dependent children, would still receive Income Support to cover their extra entitlements.)

1/30 of £198.87 comes to £6.63. This turns out to be a larger percentage of average wages than the direct calculation from them, a sign that the high local pay rates are more than offset by the even higher local cost of living.

There is a trade-off in all this: To be an economically viable job, the output must add more value than the pay rate. There is a ceiling to the market values of all goods, services and “solutions”, and if the pay rates of the providers rise too high, they simply price themselves out of work, whether the employer downsizes earlier or goes broke later. In hard times, the gap between the minimum legal wage and the maximum viable wage may become critically small, or even negative. However, to keep poor and demoralised workers from clogging and bleeding the benefit system, and more importantly, to maintain a just and prosperous society, the minimum wage must be upheld, even if it costs a few already marginal and insecure jobs.

David Rotherham

4 comments:

  1. It's a pity that so few bother to read the many reports that Jersey submits to bodies like the UN and ILO under existing Human Rights obligations.
    For example, under the regular submissions from Jersey (who actually writes them?) all sorts of assurances are offered about minimum wage agreements and how they are Human Rights compliant etc.
    A recent report under the UN international Covenant on Economic, Social and Cultural Rights (CESCR))specifically adressed the international obligation to ensure that a national level of minimum wage is determined with due regard to the requirements of an adequate standard of living etc. The UN also pleaded that CESCR should be incorporated into Jersey domestic law like the European Convention on Human Rights so that individuals might take actions through the Jersey courts directly etc.
    Of course, the authors of Jersey's reply said that it was not appropriate "at this time" to incorporate the Covenant into Jersey law - but who actually decided that and was it ever debated in the States Chamber?

    The Jersey author also claimed that Jersey legislation has to have regard to all the island's international obligations on human rights and to be compliant with the European Convention on Human Rights. He or she also claimed that Jersey takes ECSCR "into account in the formulation of legislation and policies that bear upon economic, social and cultural rights."

    Perhaps JDA should study Jersey's international obligations a bit more closely on many issues such as minimum wage and perhaps too more of JDA members should join the Jersey Human Rights Group led by Deputy Bob Hill to lobby for proper adherence to Jersey's international obligations?

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  2. Gandalf The Green But Possibly Slightly Red TooFebruary 19, 2010 at 2:58 PM

    This is actually a very good and interesting piece of work, David. It certainly puts what Deputies Southern and Pitman are calling for into a different perspective. I suppose it does all come down to the question of what do we in Jersey really want? A state that has to have its taxpayers propping up those unfortunate enough to find themselves at the bottom of the employemnt market. Ot a state where we enable people to stand on their own two feet. Given the fact that I understand the Farmers Union have even been lobbying States members to actually step back even further and leave the minimum wage at its present £6.08, because they say incredibly that high finance sector wages distort the need for a higher minimum wage in Jersey falsely, I have to conclude that both the proposition and amendment are very reasonable. Your analysis only confirms this for me. How long do you think it would take us to work our way there though?

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  3. Thank you, Gandalf. To be realistic, if we started pushing for minimum wages on this basis now, it would probably be seven years to forever to wait for it to happen. Still, there is always the hope that 2011 will see a change in who Jersey votes for.

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  4. Well the debate has now taken place. No surprises, the Business Party protected their own and rattled their tin cups of approaching global collapse if the poorest got a few pennies more. A joke really. I don't know how the likes of the JDA keep going in the States faced with such couldn't give a fig stupidity. But pleased that you do. Keep it up.

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