Geoff's Proposal for a Long-term Improvement in Relative Minmum Wage Levels

The States are asked to decide whether they are of the opinion:
 
a).        that the minimum wage should be set at 45% of average earnings, to be achieved over a period of not less than 5 years and not greater than 15 years from April 2011 ; and
 
(b) to request the Employment Forum to have regard to this objective when making its recommendation on the level of the minimum wage to the Minister for Social Security.

Deputy G P Southern


REPORT

In summing up the debate of P212 / 2009 which followed extensive debate on P14 /2010, the Minister of Social Security had the following to say:

“.. it has been difficult for me to bring forward a recommendation… because it has been a slight step back from the percentage of the previous year, and I strongly believe that they (Employment Forum)should be bringing forward recommendations which increase the level towards the 45%”.


Minimum wage level - principles

The Employment Forum recommended in 2006 that the minimum wage for April 2008 should be set by reference to 40% of the overall average weekly earnings, as released in the June 2007 average earnings statistics. This was based on evidence that minimum wages in other jurisdictions are generally around 40% of the average wage of those jurisdictions.

In making its recommendation, the Forum had been influenced by the Economic Advisers advice regarding the States inflation policy and caution regarding the competitiveness of export driven industries. The Forum emphasized that if the States of Jersey wished to raise the bottom end of earnings, the minimum wage must equate to more than 40% of the average wage in future. Ideally, the Forum would aim to gradually increase the percentage of the average wage used in the formula towards 45% in the future. For example, 40.5% of the average wage would have given a minimum wage of £5.47 for April 2007. The Forum intends to take this into account in its 2007 internal review of the proposed uprating mechanism.

By 2008 the principle of raising the relative purchasing power of the minimum wage to over 40% of the average had been adopted.

“The Institute of Directors suggested that the minimum wage should be £6.08 per hour, based on a formula of 40.5% of the June 2008 average weekly earnings. Although a number of respondents said that the formula should not be increased beyond 40%, the Forum considers that this is based on an expectation that the 40% figure itself will be significantly above the average earnings figure.”


They concluded as follows –
“The Forum unanimously agreed to show a commitment to very gradually increasing the minimum wage above 40% of weekly average earnings (half a percent increase for 2009).
The Forum recommends a minimum wage of £6.08 to apply from 1st April 2009.”

Recent debate

On 25th March the States decided that it would not support either my proposition P14 / 2010 or Deputy Trevor Pitman’s amendment which maintained the 40.5% standard and raised the level to 41%, respectively. Given the impact of the recession, the Assembly decided instead chose to go along with the recommendation of the Forum.

The Social Security Minister, despite supporting the recommendation, appeared to lend his support to the principles outlined by the Forum above when he stated in his summing up on P212 / 2009:

“… I believe that there should be (a formula) and we should over time see it moving up”.

In the debate on this issue I pointed out that the level of the minimum wage, whilst clearly being an economic decision, was also one which was legitimately also a political one. In establishing a minimum wage the States have quite properly committed themselves to the protection of our lowest paid employees. I argued that this protection must be at least maintained and when possible raised along the lines suggested by the Forum. The Social Security Minister appeared to give support to this approach when he said:

“Sometimes this Assembly has not always felt itself able to make difficult decisions in times of good when we should have done … part of the role of government is to put pressure on business to do the right thing.”

As the minister made clear, politics (though not “politicking”) has a role to play in setting the minimum wage rate. He finally made his personal position on the minimum wage crystal clear, when he stated:

“I have made it clear to the Employment Forum that when we are out of recession, they should have the courage to come forward with increases because it is only right and proper that they do so.”

This proposition, I believe, allows the Assembly to put its weight behind the Minister’s obvious support for the principled approach adopted by the Forum, and sets the right political framework within which the Employment can feel supported in judging the pace at which the minimum wage rate can be improved.

There are no manpower or financial implications for the States in this proposition.

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

Public Sector Pay Is Not The Problem

The headline 'Adapt or Die' over the article on Ben Shenton's views was sufficiently alarmist to cast doubt on the integrity of what he was reported to be saying, but I was even more concerned when I read the details.He appears to say that the solution to the Island's problems lies in public sector pay, which must be reduced. I fail to see why he targets the public sector employees in this way, as they are in no way responsible for the current recession nor even for the 40% spending rises. In the period from 2005 to 2009, inflation has risen by 16%, and average earnings in the public sector have risen by 22% - the same as the average earnings in the private sector.

If we go back to the beginning of this economic cycle in 2002, the cost of living has risen by 31%. In this period average earnings in the public sector have risen by 33% and in the private sector by 38%. In 2009, due to the pay freeze, average earnings in the public sector have again fallen behind the private sector. So bringing public sector pay into line with private sector pay would involve a pay rise for most public sector workers. For example there is at least one private school in Jersey that pays its teachers 5% more than those in States' schools.

The 40% rise in spending mentioned by Senator Shenton may be due such projects as the incinerator, and the mismanagement demonstrated by senior officers but pay levels are not the cause of overspends. It seems that in any economic difficulties the public sector is targeted. When the economy overheats these employees are asked to show restraint. In times of recession, when they could help to boost the economy if their spending power were to be maintained they suffer a pay freeze. Let us not forget that these employees are not just faceless bureaucrats, but groups such as teachers, nurses, firefighters and paramedics who provide vital services.

Senator Shenton refers to the pensions 'black hole' but employees have paid contributions over their working lives and the employer's contributions have been part of their terms and conditions. These conditions and the job security that he also wishes to remove are part of what attracts well educated people into the public sector when they could earn more elsewhere. But these benefits are currently being eroded. For example, new entrants to the teaching profession will have much reduced pensions, and not until they are 65 rather than 60. As this is worse than is on offer in the UK we are likely to see further recruitment problems. There is currently a severe shortage of nurses due to the fact that the pay in Jersey is not high enough to compensate for the high cost of living.

Senator Shenton must know that Jersey is, contrary to the current spin, a low tax, low spend economy. Progressive taxation - not an increase in GST - could continue to deliver the services we have enjoyed up to now. Perhaps his emotive 'adapt or die' has some truth in it after all. Jersey must adapt to paying the appropriate rate for its services, or a cancer sufferer who has to wait for treatment because of a shortage of health professionals may well die.

Anne Southern

Geoff responds to Kevin Keen on Pay Freeze

The letter from Kevin Keen, until recently the manager of the Dairy, “Sorry, States workers” (JEP, 9 Oct), demonstrated not only a deep prejudice against the public sector workers but also a fundamental misunderstanding of basic economics and industrial relations. It also gave a less than accurate picture of the state of the economy.

To suggest that they should feel lucky not to be made redundant or be forced to take a pay cut is simply offensive. The first draft of the Health Business Plan did indeed threaten redundancies for some staff. Thankfully these were later withdrawn. Whilst, regrettably, there have been some redundancies in the private sector, their numbers have been fewer than many anticipated.

As to pay, whilst some employers have taken the opportunity to cut or to freeze their employees pay, this has not been the rule, but the exception. Cost of living pay rises have been awarded by many companies and bonuses have continued to be paid, especially in the finance sector.

The difference is one of representation. Where employees are represented by a trade union or strong employee association, they have been better treated. I have a list of 14 private sector groups where the workers are represented by Unite, whose representatives have negotiated pay awards at or above the March RPI of 2.1% through the normal process of collective bargaining. The public sector has similar representation, but they have had their rights to bargain removed by the arbitrary, unilateral and late decision to impose a pay freeze.

In the meantime the details of the Fiscal Stimulus Plan have been announced, with some £26 million going into building and renovation projects and a further £6 million on infrastructure. The vast majority of this money will be pumped into local private sector companies. This is exactly what government should be doing in a recession; spending money to keep the economy going and save jobs. This is £32 m to support the private sector. Does Mr Keen and the Chamber of Commerce object to this? Of course they do not. But in the same breath, he objects to some £3.5 m going to the public sector to stimulate the economy. This is sheer hypocrisy.

The need for government to maintain spending through a recession is a basic tenet of economics. As David Blanchflower, until recently a member of the Bank of England’s Monetary Policy Committee recently commented “Lesson one in a deep recession is you don’t cut public spending until you are in the boom phase”. Commenting on the Tory party proposals to cut public spending and freeze pay, he said that they would “push the economy into a death spiral”.

All the public sector representatives are asking for is the restoration of their collective bargaining rights. The Chief Minister, along with his supporters should recognise the justice of the public sector workers’case and step back from the confrontation with their employees that they have provoked.

Geoff Southern

Geoff Lambasts Terry's Slippery and Misleading Tactics

How clever and slippery is our Chief Minister. He appears to have convinced representatives of States employees that he has reopened negotiations over 2009 pay and public sector cuts, when nothing could be further from the truth. In the words of the report (JEP 12th August) “they won’t budge over £4m cuts and the pay freeze”.

Negotiations may take place, but they will be “within policy”. That policy, decided not by the States, but imposed by the States Employment Board (SEB) and sanctioned by the Council of Ministers, is simple: there will be a pay freeze and service cuts. These are not negotiable; the Chief Minister is just playing for time.

It will surely not take long for union representatives to realise that they have again been misled by Senators Le Sueur and Ozouf. It is highly unlikely that a meeting between representatives and SEB can take place before the first week of September and yet the Business Plan will be in place and set in concrete by the 22nd. Such a timescale makes real negotiation impossible.

Earlier in the year, whilst the Treasury Minister presented zero pay awards as the norm on the basis of zero evidence, the Chief Minister was equally slippery with the facts in debate over the pay freeze in the States. He presented comparisons which purported to show not only that public sector workers were better off than their counterparts in the UK, but that they were also better paid than those in the private sector in Jersey. His figures were designed to mislead.

To start with, he failed to compare the cost of living in Jersey and the UK before comparing wages. The best data can be obtained from the Jersey Household Expenditure Survey (HES) 2004-5. This reveals that the cost of living in Jersey is a massive 46% higher than the UK. This is the benchmark for any real comparison of wages, and yet it was not mentioned in the report to the States.

Figures presented by the Chief Minister suggested that public sector workers were far better off than their colleagues in the UK. On average Jersey States workers were 39% better paid. This does not make them 39% better off. To be better off, Jersey workers would have to be paid at least the benchmark figure of 46% more to match the cost of living here. They are in fact 7% worse off.

Similar remarks could be made about the figures presented for comparison of Jersey public and private sectors in order to justify a pay freeze. For example, public sector nurses are supposed to be 1% better off than their private sector colleagues. The data reveal that they are in fact 6% worse off. In the meantime recruitment and retention rates for nurses are hitting all-time lows, an entire ward has been closed because of staff shortages, and a waiting list is looming for cancer treatment.

The Chief Minister may sit back and think he has got away with his handling of a pay freeze for the moment, but he is merely storing up long-term pain as a result of his short -term political gain.

Geoff Southern