GEOFF FOLLOWS UP ON MINIMUM WAGES

Further to the recent unsuccessful attempts by JDA Deputies to set a more reasonable rate for the minimum wage, Deputy Geoff Southern will bring this proposition to firm up the good intentions expressed by the Social Security Minister during the debate:-

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.

Trevor's Alternative Minimum Wage Amendment

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MINIMUM WAGE: REVISED HOURLY RATE FROM 1st APRIL 2010 (P.14/2010) - AMENDMENT

PAGE 2

For the figure of ‘£6.28’ substitute the figure ‘£6.36’


DEPUTY T.M. PITMAN OF ST. HELIER

Report

As States Members will appreciate it is hardly surprising that I agree whole-heartedly with the contention outlined within the proposition of my JDA colleague, Deputy Geoff Southern that the 2010 increase to the Minimum Wage proposed by the Minister for Social Security does not go quite as far as it should. Where Deputy Southern and I disagree is simply upon the extent of that increase. The Deputy sets his proposal at a rate of £6.28; or 40.5% of weekly average earnings.

I am proposing that the rate should in fact be based on 41% of weekly average earnings i.e. a new Minimum Wage hourly rate of £6.36. This would take us precisely to the 2010 position targeted by the Employment Forum some two years ago within a framework of aiming for gradual incremental increases of .5%.

It should be noted here that both the original proposition from the Minister for Social Security and that of Deputy Southern already provide excellent background material; drawing at length on data provided by the work of the Employment Forum. In particular I would draw members’ attention to the graph contained in Deputy Southern’s proposition outlining percentages within individual business sectors. Given this material I obviously have no wish to duplicate any information - other than that which I deem to be absolutely essential for the purpose of understanding the justification for the proposition – so will keep my observations as brief as is practical.

The principle underlying a rate set at 41%

As Deputy Southern highlights within his proposition, in 2007, the Employment Forum, in making its recommendations for the minimum wage and in looking to the future advocated a figure of 40% of average weekly earnings following comparisons with minimum wage rates of a number of other countries. These are set out in the table below. Here I would draw Members’ particular attention to the average figure based on all of the countries utilised for comparison highlighted in yellow – 41.14%.

Minimum wages as a percentage of average wage in other jurisdictions
 


An amendment that simply brings us to the point where we should now be

Though the average percentage figure indicated in the comparison chart above is compelling in itself; in his proposition Deputy Southern reminds us how the Employment Forum emphasised the fact that if government wished to raise the bottom end of earnings the minimum wage must equate to more than 40% of the average wage in future. As already highlighted, the ideal being stated that the Employment Forum would strive to gradually increase the percentage of the average wage used in the formula towards 45% in the future.

Though I personally believe that in Jersey we should actually be aiming, long-term, to ultimately reach a figure of 50%; with regard to the proposed figure for 2010 we need to bear in mind that the Employment Forum unanimously agreed to show a commitment to very gradually increase the minimum wage above 40% of weekly average earnings (half a percent for 2009). Significantly:

The 2009 figure was set at 40.5% of average earnings

Viewed within this context it is my belief that 2010 should therefore have seen us naturally implement a rate of 41%. However, as Deputy Southern highlights, in targeting the minimum wage rate for 2010 the Employment Forum has taken both a backward step from its own established benchmark figure of 40.5%; and also abandoned its previously stated aim of incrementally raising over time the relative value of Jersey’s minimum wage.

The consequence – particularly viewed in the light of significant recent hikes in electricity and domestic fuel costs, the impact of GST etc – is that the position of those at the very bottom of the pay ladder have not been protected. Indeed, it will essentially have been worsened and at the very time such employees need governmental resolution the most!

Of course, though it must be acknowledged that the Forum does offer limited comment in attempting to justify this retreat, to the effect that they felt the need for caution given the economic downturn, the fact is that an equally compelling case can be made for adhering to the Forum’s earlier position.

After all, as we stand in spring 2010 pay awards for the year relating to a number of major pay groups are still being negotiated. Both private and public sectors will now be looking to the future based on fairness and sustainability. We can be quite certain that this proposed incremental increase to 41% with regard to the minimum wage will not be out of step when these awards are finalised. I would also draw Members attention to the fact that the Minister’s proposed rate of just £6.20 is, to the surprise of many I have spoken to, actually even set at below the RPI (X). Please see the table below.






We must ensure a ‘living wage’ is available to all

Considering all of the above I feel that I must conclude with an observation arising from a public seminar I attended late last year relating to the North Town Master Plan. The incident really emphasizes the need for us to keep our sight fixed firmly on reality. At the seminar, like a number of other people present, I was shocked to hear the owner of a St. Helier business complain bitterly about how the States really should be LOWERING the minimum wage if politicians wished to help businesses like his thrive.

Indeed, the gentleman went on to state quite specifically that if we (the States) would only allow him to pay people £3.00 an hour his business and many others would be so much more profitable. Why do I mention this now? Only because I feel – like so many of my constituents working in this bracket who find it necessary to approach me for help – that there are far too many people in Jersey who, perhaps because they have never had the misfortune to find themselves there, have no real conception at all of how difficult it is to make ends meet on Jersey’s present minimum wage.

As I believe most Members will be all too aware, a great many people at the lowest end of the earnings market work very hard indeed. There reward – a reward that we as the island’s government should ensure with vigour and courage given the reality of our highly expensive island – is a rate of minimum pay that is not an ‘existence’ wage but a ‘living’ wage. Setting that rate at £6.36 will do just that. Though an increase form the Minister’s proposed £6.20 per hour of 16 pence may seem, at first glance, a big difference let us keep this in perspective: set against an assumed working week of 40 hours this actually breaks down at an increased salary of just £6.40 per week.

Financial and manpower implications

I believe that there are no direct financial or manpower implications for the States.

Geoff's Minimum Wage Amendment

Deputy Geoff Southern will be proposing the following thoroughly reasoned amendment to the new Minimum Wage Order:-


‘to request the Minister for Social Security, having sought the views of the Employment Forum as required by Article 18(1) of the Employment (Jersey) Law 2003, to make an Order fixing the minimum wage at £6.28 per hour and, as this figure is different from the £6.20 rate recommended by the Forum, to report to the States as required by Article 18(4) of the Employment (Jersey) Law 2003'

The recommendations of the Employment Forum on the minimum wage rates for 2010 are summed up as follows:-



The States are asked if they are of the opinion –


In arriving at this figure for 2010, the Employment Forum examined a wide range of factors. The table below illustrates their impact on the minimum wage rate.





In 2007, the Employment Forum, in its recommendations for the minimum wage had the following to say, in establishing the principle of setting the minimum wage at 40% of average earnings:

“The Forum considers that it is logical to take the June figure of the preceding year and intends to use this formula each year to recommend rates for the following April, subject to consideration, only where necessary, of factors which have had a major impact on the economy, for example an exceptionally good or bad year in the finance industry.

Taking the assumed working week of 40 hours, 40% of the average earnings across all sectors of £540 per week, equates to £5.40 per hour.”

This figure of 40% of average earnings was adopted following comparison with other countries’ minimum wage rate given in the chart and table below.



Minimum wages as a percentage of average wage in other jurisdictions

 



The minimum wage rate
The 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.”

The 2009 figure was set at 40.5% of average earnings. In establishing the level for 2010 the Employment Forum has retreated not only from its own 40.5% benchmark figure, but it has also abandoned its stated aim of gradually raising the relative value of the minimum wage. Worse still the Forum has reverted to the 40% mark and thereby failed to protect the position of the low paid.
The June 2009 figure for the rise in the Average Earnings Index (AEI) was 3% overall. The figure for the private sector was 3.3%. These overall figures however mask the trends in the low paid sectors. The sectoral figures are given here:

Individual Business Sectors

Figure 3 - Annual percentage change in average earnings by sector



The traditional low-paid areas of employment, agriculture, retail and hospitality, saw average earnings rise markedly. The award of only a 2% rise to those on the minimum wage to the hourly rate of £6.20 for 2010 actually reduces the protection offered to these lowest paid; it makes their relative position worse. This proposition simply restores the 40.5% benchmark set the previous year. It produces an extra 8 pence per hour and raises the minimum wage to £6.28.

In percentage terms, the rise in the minimum wage proposed in this report amounts to 3.3%, coincidentally identical with the AEI in the private sector. It also matches the RPI (Low Earnings) figure for December 2009.

What this proposal does is to restore those on the minimum wage to the position established in 2009. Any figure below this effectively reduces the protection offered by the States to our lowest earning workers. Especially in times of hardship I believe we must maintain this protection. We should not allow the lowest paid to bear the brunt of the recession.