Is the Minimum Wage the best way to increase take-home pay?

The Conservative Party sometimes appears to be suffering from Stockholm syndrome. This is the psychological condition where hostages start defending their captors, sometimes to the point of agreeing with their grievance and thinking the kidnapping was in some way justified. As should be obvious, I am being more metaphorical than literal; but there the Conservatives are, happily minding their own business, thinking conservative things, when along comes a bunch of thugs to take them captive and they find themselves thinking that the only way out is to start agreeing with their captors views on all sorts of issues.

I refer, in this instance, to the Conservative Party’s flirtation with an increase in the minimum wage. It might sound like a good idea, but it’s a policy that trades people’s jobs for small increases in the pay of those fortunate enough to still have one, which is not so good. Some argue that there is, in fact, no link between minimum wages and unemployment, but their evidence is so convoluted and dependent on other mitigating factors that it is meaningless, or at best unverifiable. Until someone can adequately demonstrate that increasing the cost of something does not, as a general rule, reduce demand for it, then I’m sticking to orthodox economic theory. And so should anyone else who agrees with the scientific method.

There are two basic reasons why people advocate minimum wages, both of which are unsatisfactory yet sadly prevalent: first, if of a general Labour persuasion, it is to further the concept of the client state, which encourages parts of the electorate to vote for their party out of fear that benefits, usually economic, will be lost to them if they do not; and second, if of a general Conservative persuasion, it is to protect themselves from people only too willing to denounce them for being nasty, uncaring and generally immoral and in love with the idea of grinding ordinary people’s noses in the mud.

As such, there is another definition for Stockholm syndrome that is perhaps more apt: the formation of traumatic bonding between two parties, one of whom harasses, intimidates, abuses and threatens the other. As far as the minimum wage is concerned, one party expresses concern that an increase, while helping those in work, runs the risk of keeping others out of work, and the other suggests that this is just another example of heartless toryism. To avoid such denunciation, the rational response is to convince yourself that perhaps you are wrong and that an increase in the minimum wage only has an upside.

So when Conservatives start admitting that there is a ‘strong case’ for raising the minimum wage, they are in a sense speaking the absolute truth, as they see it. Though it is tempting to say that it is politics that has convinced them, not economics. It is politically expedient to agree that minimum wages are just great, because in so doing they remove one of the sticks with which their political opponents can beat them. But this is not how we should want politics to be conducted: one side making policy out of fear rather than rationality and conviction.

The sad thing is that there are legitimate arguments for and against increasing the minimum wage; indeed, for its very existence. On the one hand it really does increase the take-home pay of the low paid. This is to be welcomed. We accept that the poorest households could all do with a bit more money. But on the other hand, there is the negative of some people somewhere not having a job because of the rise other people have received. It is a simple choice as to whether we think higher pay is worth a bit more unemployment, which we might try to mitigate in other ways. That should be the debate, not the crude bully-boy spectacle we have of one side decrying the other for being immoral and nasty. Indeed, where Stockholm syndrome is strongest, the aggressive party doesn’t even need to say anything – it’s a simple psychological truth that your life will be easier if you go along with them.

I suppose this is the logical consequence of the ‘fairness agenda.’ Fairness is entirely subjective, and as such tends to ape religious faith: it’s just something you believe, like, really strongly, and if you don’t agree with me then you’re a heretic and burning at the stake is probably too good for you. What is saddest in this spectacle, from all parties, is that the interests of the poor, rather than being the primary motive for their politicking, is the last thing on their minds. What happens instead is that too many politicians contort policy to show how fair they are, while actually being nothing of the sort. It might be fair for the poor to get more pay, but it is not fair for other people to be put out of work to achieve that aim.

And there are other ways to increase people’s take-home pay; for that is the objective of the minimum wage, is it not? We could increase the personal income tax allowance to cover all those on the minimum wage, necessitating an increase from £10,000 to £11,400, which the Liberal Democrats seem to support, as does the Taxpayers’ Alliance. We could also try controlling immigration which puts downward pressure on wages. In time, with fuller employment and a controlled labour market, wages would naturally rise to make the argument for a national minimum wage defunct.

This is now leading into a wider-ranging argument as to why wages are low in the UK, which is for another time or, better still, for someone not writing from a position of ignorance; but whatever decisions the government takes over the minimum wage, it is worth remembering that it is an issue with just a little more complexity than the good guys in favour and the bad guys, the heartless, the tories, not in favour. This might be naive, and perhaps overly charitable, but most politicians, of whatever colour, would like to see the condition of the low paid improve. It’s not a matter of objective, rather it’s a matter of method.