When the sun rises on workers' wages, and what to do when it sets

Posted in: Business and the labour market, UK politics, US politics

Californian workers have enjoyed a week of sunshine.  The Governor of California, Jerry Brown, has reached a deal with labour unions and state political leaders to raise the Californian minimum wage to $15 an hour (£10.45 at current exchange rates). The proposal now goes to the state Assembly for approval; if it is passed, six million Californian workers will get a big pay rise.

British workers are also feeling the benefit of a minimum wage increase. From 1 April, the so-called National Living Wage kicks in for employees over the age of 25. It will start at £7.20 an hour and rise to £9 by 2020. In practice, this is a higher minimum wage, not a Living Wage, but it is still a pay rise for millions of workers. The Resolution Foundation estimates that 4.5 million workers will see their pay rise as a result of this policy in 2016 – for those on the national minimum wage, it will mean a 10% pay rise.

These are big wins for working people on both sides of the pond. But they have been achieved by political action, not industrial muscle. The vast majority of workers who will benefit are not unionised. Their gains have come from political mobilisation instead. In the US innovative, energetic campaigns to raise the wages of employees in fast food chains have been targeted at city and state legislators who have the authority to set local minimum wages. As the power and reach of big unions has waned, alternative organising campaigns have sprung up, and they are chalking up some impressive victories, like that in California.

In the UK, the Living Wage campaign has proved the most effective cross-party, civil society organiation to organise for low-income workers’ interests in recent decades. It has gone from strength to strength, even in the months that have followed the government’s announcement of an official National “Living” Wage. It is highly unlikely that the government would have acted to raise minimum wages without the trailblasing efforts of the Living Wage campaign.

None of this is much consolation to the steelworkers facing unemployment at Port Talbot and other plants. Despite the talk of assistance to retrain and find new jobs, the likelihood of their gaining employment at the skill and pay levels they can secure in the productive steel industry are remote, particularly with the public sector shrinking. Many will end up on the National Living Wage instead.

There are plenty of global factors at work in the steel crisis, chief amongst them the export of huge volumes of Chinese steel onto world markets, and the stagnation of demand for steel, both in China itself, and in the investment starved West. But one thing unites both steel and the service sectors where the majority of minimum wage workers are employed, and that is the need for long-term, coordinated industrial strategies to raise R & D, investment, skills and productivity.  EU state aid rules may be too prescriptive – the continent needs to advance its global interests through public investment and EU-wide industrial strategies, and not just to enforce single market rules – but plenty of this is possible within the existing policy framework. If the minimum wage gains offer one lesson, it is for the primacy of politics: shaping markets in the public interest, not just compensating the losers.



Posted in: Business and the labour market, UK politics, US politics

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  • It's not easy to increase minimum wage, because increase in minimum wage will increase the cost of goods and services, therefore companies will increase their price then many people will not want to buy the goods and services. Increase in wage will also likely that the inflation will increase but in UK inflation is relatively low so its ok in that matter. But the economist should find the optimal level to increase wage with the given condition of the economy of UK and EU.