National Minimum Wage under attack

Mark Littlewood, the newly appointed Director General of Institute of Economic Affairs, has written a blistering attack on the National Minimum Wage.

In the Personal View section of the Telegraph website, Littlewood writes:

“The full, and substantial, cost of Britain’s minimum wage legislation is becoming increasing plain to see. In times of plenty, the impact it had on pricing employees out of the labour market was less dramatic. But in the depths of a recession, it acts as a real barrier in getting people back to work. This is especially true of the young.”

In suggesting this proposal, Littlewood provides no evidence that the NMW has anything to do with rising unemployment. Far from “pricing employees out of the labour market,” research by the ippr last year (i.e. before the recession started) showed that:

“almost six in ten poor households in the UK (57 per cent) have someone at work, up ten percentage points on a decade ago.”

The report goes onto cite a study by the OECD which showed:

“If low-paid jobs provide an entry into employment for the low-skilled and inexperienced, one might expect a positive correlation between the incidence of low pay and their employment/population ratios … [but they] do not appear to be strongly correlated with the incidence of low-paid work.”

Cutting the 18-21 year old NMW rate as a remedy for youth unemployment would also penalise, rather than help, young people. An alternative approach was outlined by Celia Hannon yesterday on Demos’ blog, who wrote:

“V, the national young volunteers service … has already asked the Government for flexibility in applying the criteria of the Future Jobs Fund to create a national public service scheme to create jobs for 18-24 year olds.”