Politicians battle to promise workers a bigger pay boost

There’s a new political battleground in British politics, and it’s one workers will like.

Boris Johnson’s ruling Conservatives and Jeremy Corbyn’s opposition Labour Party are sparring over who will raise the country’s minimum wage highest and fastest. Britain’s recent experience with implementing a “National Living Wage” suggests it needn’t have negative consequences for the labour market.

In his speech at the Conservative Party conference in Manchester this week, Chancellor of the Exchequer Sajid Javid set out an ambitious plan to end low pay over the next five years, claiming the Tories were now Britain’s real “workers’ party”.

It’s not quite true that Javid’s economic platform, laid out in expectation of an imminent general election in Britain, was as radical or worker-friendly as the one put forward by Labour at its own conference last week.

But his plan to take the National Living Wage to two-thirds of median earnings by 2024 would on current forecasts equate to £10.50 ($20.67) an hour. That’s one of the highest levels, if not the highest, in the developed world. Javid also said he would reduce the age threshold for qualification down from 25 today to 23 in 2021, and to 21 in 2024.

Javid has upped the ante in trying to outbid Corbyn and John McDonnell, his shadow chancellor. Johnson is targeting Labour’s industrial heartland, where many people voted for Brexit, in the forthcoming general election. McDonnell’s plan is to lift the National Living Wage to £10 an hour as early as next year.

For all the complaints from employers and the uncertainties of Brexit, the race is on to offer working Britons a better deal.

The recent experience of the British labour market is in many ways reassuring. In 2016, then-Tory Chancellor George Osborne stunned his political opponents by announcing the introduction of the National Living Wage for the over-25s, which would reach 60 per cent of median earnings by 2020. This was far more ambitious than had been asked for by the country’s Low Pay Commission, an independent body which sets minimum wages.

Osborne’s gambit was a success. The Resolution Foundation, a think tank that looks at low pay, has found that the percentage of employees paid less than two-thirds of the median hourly pay fell from 20.7 per cent in 2015 to 17.1 per cent in 2018. And there have been no big detrimental effects on employment, which one might expect if pay hikes were excessive.

Britain’s overall employment rate has reached 76.1 per cent, the highest on record. The average number of hours worked by those on the minimum wage has also increased since 2016.

There’s also evidence that supports the expansion of the policy. Arindrajit Dube, an economics professor at the University of Massachusetts Amherst, who was asked by Hammond to examine minimum wages in Britain, said in May that plans to increase it could be manageable. He looked at some large US states and found that the number of low-wage jobs remained broadly unchanged during the five years after an increase, while living standards improved for some of the poorest families.

Still, these are significant hikes, so it’s hard to be certain that they won’t have a detrimental effect on employment. It’s better, therefore, to have a framework that allows the minimum wage to be lowered as well as increased. Leaving sufficient autonomy to the Low Pay Commission appears the most sensible approach.

Such prudence appears warranted with Brexit around the corner. Javid reiterated that Britain will quit the European Union at the end of this month, with or without a deal. An economically damaging departure would have dramatic consequences for Britain, including its labour market.

British politicians must stop doing things in the wrong order. Brexit may be tedious, but it’s dishonest to tell voters what will happen next without knowing what form it will take.