Raising the Minimum Wage - A good idea?

20 Jan 2014

With the minimum wage being looked at by both the Chancellor and the Labour Party, and with attention concentrated on a perceived cost of living crisis for families across the country, it is well worth asking the aforementioned simple, but necessary question: is raising the minimum wage a good idea?

On the face of it, the minimum wage is a very good thing and so, obviously, an increase is a good idea. Naturally, it will help workers and provide some assistance with living costs and, therefore, will always be welcomed by groups who represent workers similarly. The issue of the minimum wage is also a very tactical electoral issue, with ordinary workers being a big target for parties come 2015. If the government would be able to bring about an increase in the minimum wage, this could help show the real effects of the economic recovery and potentially bolster their political campaign in 2015. The minimum wage could also provide a game changer for the government in terms of the so-called ‘cost of living crisis’, in the fact that wages would be increasing from around £6.31 to nearly £7. This would be of great benefit to workers, and might prove to be of even greater benefit to the government when it comes to May 2015. 


However, the issue is not that straightforward. That is because an economy is not just about people but also about business, and a raise in the minimum wage would tend to come out of their pockets, which might make some businesses (particularly smaller businesses) argue that a minimum wage rise is not the answer. If the policy idea became law, then this could harm business confidence and result in job losses. This would invariably harm the economy, and all down to an increase of £0.69 per person, per hour. 

So, with this in mind, is it worth it? Well, as I say, the key to business recovery in the economy is confidence, and if companies like SMEs have to pay higher wages, then this could be damaged, leading to rising unemployment and other dire effects for the government, particularly when we are attempting to reduce our benefits bill. Indeed, the face value may not be the true value of the measure, and perhaps this is more about gaining votes than actually producing tangibles economic benefits. 

Ultimately, it is about the balance of micro and macro risk; the microeconomic benefit to workers’ wages coming at the expense of our macroeconomic recovery. So, to conclude, if an increase comes, it should be an increase which can be afforded by businesses and which can have an overall benefit to workers. Balance is needed here, but the initial idea is still very good – the fact that measures on increasing wages as well as decreasing living costs are being considered by the government can only mean that this is the right way forward, just maybe this is not the right time.

By Sam Kenward

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