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Thursday, June 11, 1998 Published at 07:46 GMT 08:46 UK

Business: The Economy: Economy Reports

How would the minimum wage affect us?

A minimum wage of 3.60 would boost young people's, women's wages

The minimum wage has always been controversial since Labour's pledge to introduce it during the General Election. The unions were hoping for a figure that would dramatically reduce poverty, while business was warning that a high figure could lead to job losses. The Low Pay Commission finally recommended a figure of 3.60 an hour for people over 20, and 3.20 an hour for younger workers between 18-20.

At the recommended figure, about 1.5 million workers would have their wages increased - half by more than 15 per week.

[ image: Women gain most from the minimum wage]
Women gain most from the minimum wage
But the impact of the minimum wage varies considerably across sectors. One in ten women will benefit from a minimum wage, as opposed to only 4% of men overall.

The impact is even more dramatic on young workers, particularly for men. Up to one in five of the under twenty-fives would have their wages boosted by the proposed figure.

But the impact on poverty is somewhat mitigated by the fact that one-third of those benefiting from a minimum wage are not the head of households - they are young people living at home or married women living with employed husbands.

In fact more households in the middle income groups benefit than at either extreme of the income distribution.

Where are the Low-Paid Jobs?

[ image:  ]

Low paid jobs are concentrated in the service sector, and many are part-time or seasonal. Many are also mainly done by women, such as child care, catering, and cleaning. Even in these industries, male and female wages vary considerably, with many more women therefore benefiting from a minimum wage.

Many of these occupations were once covered by wages councils, a system of wage regulation that was abolished by the Conservative government in the l980s.

Will the Minimum Wage Cost Jobs?

Businesses have often expressed concern that a high minimum wage would cost jobs - both directly, because they would be unable to afford to employ more people, and indirectly, because other workers would bid up their own wages in an attempt to maintain their differentials with the low-paid.

But the CBI, which had a representative on the Low Pay Commission, says the 3.60 rate is "workable and reasonable."

[ image: Small business fears job losses]
Small business fears job losses
In contrast, David Harrop, of the Forum of Private Business, which represents small businesses, says he is deeply worried. He claims its effects will be felt deeply in areas such as retailing, hospitality and catering, and in certain parts of the country like the North and Southwest.

Small business would like the lower rate to apply to firms with under 20 workers, who are also being exempted from some provisions of the new employment legislation.

They would also like different rates for the less affluent regions of the country.

Meanwhile it has also been reported that the Treasury is reluctant to endorse the minimum wage rate of 3.20 for young people. They fear that the rate will discourage employers from taking on unemployed young people in the government's New Deal programme. That provides a subsidy of 60 a week for firms who take on people between 18 and 26 who have been unemployed for more than 6 months.

What Do Other Countries Do?

Most other industrial countries do have a minimum wage - but the level varies considerably. And many countries do exempt some groups of young people.

European countries tend to have the highest minimum wages, and some analysts believe this is not unrelated to the higher levels of unemployment - especially among young people - and the big size of the black economy.

[ image:  ]
Clive Thompson, chairman of Rentokil, the security firm, argues that minimum wages have not been good for employment. "There have been a number of cases where unemployment has increased as a result and it has never been shown to reduce unemployment," he commented.

France has often been cited as an example of a country where high wages - and a cut in the working week - are pricing workers out of jobs.

On the other hand, the US has created over 20 million jobs in the last decade despite having a minimum wage similar to the level now being suggested in the UK. After a considerable debate in Congress, the US is now planning to raise the minimum wage level higher.

In Japan the minimum wage applies regionally, with many different levels across the country.

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