Youth unemployment started to rise under Labour, partially but not entirely as a result of minimum wage legislation. Also to blame are poor standards in schools, and a raft of tax employment legislation which cumulatively raised the cost of employing a young person without experience above that of the benefit to the employer of him doing so. Of course some young people are worth the risk, being hard-working, conscientious and eager to learn. The problem that employers face is getting rid of those who aren’t is too expensive and as a result fewer young people are hired.
The main loser from this are the young people themselves. Without any experience between 18 & 21 to raise their marginal productivity above £6.08 an hour, they face a lifetime of being unemployable. Supporters of the minimum wage can point to the lower rates, £2.60 an hour for apprentices, £3.68 for 17-18 year-olds and £4.98 for 18-20 year-olds, but that doesn’t cover the increase in employers’ NI, the cost of PAYE, the difficulty of dismissing unsuitable workers. Hiring young, unproven people is just too risky.
The reason for the introduction of the minimum wage is that some employers, it was thought but not conclusively proved, exploited monopolistic power over immobile, unskilled labour and could drive wages below that available to do nothing on the welfare state. And this boogeyman reveals a fundamental feature of the Left’s thinking about employment.
I often characterise socialism as the belief that a dead-end, unionised job in a factory is the best anyone (else) should hope for. And here, indeed, in the 19th century model, the mill-owners could and in many cases did drive down wages, using their power as monopolies or cartels to keep wage costs down. And in this environment, organisation to defend the interests of Labour against that of capital, makes sense. This is the left’s intellectual hinterland. Minimum wages, employment rights and so forth make sense when each town had its factory, Luton hats, Northampton shoes, Birmingham bicycles or whatever, with a large supply of excesss labour coming off the land. It does NOT fit today’s Labour market in the UK.
Employers who take on an apprentice are likely to lose him after a couple of years, as rival employers who have not invested in the costs of educating youngsters can afford to pay more. He may not like the job, and instead prefer IT sales or estate-agency and the chance of a company BMW. This is why there are so few apprenticeships: those who go through them become very employable and not just in the low-wage industry that creates many of them. They just don’t fit the modern jobs market, but occupy a left-wing fantasy from a vanished age.
Private sector employers are not monopolistic actors in the Labour market. There is competition to keep and retain staff, even in this age of unemployment. People who have the skills (and here, we’re often actually talking about the ability to speak clear English, turn up, on time, reasonably well presented and work hard) get a job, because employers are crying out for such people. And those who have never, thanks to a dearth of ‘entry-level’ jobs, been able to demonstrate these skills? Their CVs and job applications will be thrown in the bin for every job they apply for.
The left has used legislation suited to the 19th century caricature of the top-hatted mill-owner, holding a whip hand over his employees whom he regards as serfs, and applied it to a fluid, assortive labour market where the greatest power is held by the most employable, a little less by average employers and none whatsoever is held by unskilled labour. Perversely, by denying them any opportunity to ever demonstrate a basic work ethic, the unskilled rapidly become unemployable after their 21st birthday. Thus the minimum wage destroys the life-chances of those it is designed to help.
It is for this reason the left, and especially Labour, represents the employees of the last great monopolistic employers: the State. Substantially all nurses in the UK are employed indirectly or otherwise by the NHS. State and local-government bureaucrats remain unionised, because the skills they learn on these jobs are rarely directly transferable into the private sector. Labour market reforms which help the low-paid state worker deny jobs to those in the private.
Private sector employers in the UK who compete using unskilled labour to drive down costs get smashed by those doing the same thing in China or India. They’re out of business. Instead, employers are of two types: hyper-local services such as hairdressing which cannot be outsourced, where wages form a function of the local economy’s wealth – check out the price of a cut ‘n blow-dry in Kensington (the cheapest I could find was £18) and Barnsley (where the most expensive I could find was £12.95). Or they are in a fight for the most productive staff, and pay sufficient to keep staff in that market place.
Thanks to the union demanded national pay bargaining, the state distorts the labour market. In high wage areas of London and the South East, the state pays nowhere near enough to keep its staff. The NHS is hugely reliant on agency nurses as a result. In the North East however the state is a very generous employer and effectively crowds out the private sector entirely.
Of course this suits the political parties. Labour represents the public sector in the North and the Celtic nations. The Tories represent those employed in the private sector down South. The minimum wage doesn’t affect the remaining private sector employers much, but represents the bottom rung of the highly stratified state-employed pyramid. Both sets of MPs benefit from the safe seats it creates.
By denying the right of people to sell their labour at their marginal rate, no hope of advancement becomes available to the long-term unemployed. Of course reversing the minimum wage will not go very far in reversing the problem. Other costs – payroll taxes and employment legislation also have their place, as does an end to national pay bargaining in the state sector. Whatever changes are made now will only see their benefit in a decade or more, just as the youth unemployment rate hit the headlines about a decade after the policies which caused it. A decade is too long for blame to be correctly apportioned in a democracy.
Meanwhile 20% of our young people have no job, and will probably never get one. This will cost us all for the rest of their miserable, confused, oppressed, welfare subsidised and hopeless lives. All so two parties of political elites can form voting blocks – labour create the policy, and the Tories lack the intellectual & political courage to reverse it.