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Minimum wage Tuesday, 30 March, 1999, 17:15 GMT 18:15 UK
Impact on jobs
By Chris Giles from the BBC's Economics Unit

It is a well-known fact that no two economists ever agree.

But when it comes to the effects of a minimum wage differences of opinion are more vehement and heated than in almost any other area of economics.

Minimum wage
The controversy comes from the fact that large planks of orthodox economic teaching are at stake.

A minimum wage destroys jobs and the economy according to standard economic theory.

It says that if you force employers to pay their staff more than they are worth with a minimum wage, they will cut jobs.

But proponents of the "new economics" of the minimum wage say such theories are rubbish.

In fact, they argue, minimum wages generally have no effect at all and sometimes even increase employment.

Economists in this camp say some employers exploit their staff paying them less than they are worth. So a minimum wage simply forces employers to pay the correct rate for the job.

They lose money and profit but do not have any reason to lay off their staff.

Looking homewards

One would be forgiven for thinking that the best way to sort the wood from the trees on this debate was to look at statistical evidence from the UK and around the world.

But this information is just as contradictory as any of the theoretical arguments on offer.

The clothing industry has not shed much light
Wages councils used to set minimum rates of pay for people working in the clothing industry and in restaurants.

These were finally abolished in 1993. While they existed, most of the research found they had a negative impact on jobs.

These findings were seized on by the last government when they proposed abolition of the wages councils.

Since their abolition little evidence has arisen that there has been a significant increase in employment in the industries they previously covered.

This gave campaigners for the minimum wage a boost.

International confusion

Over time the evidence from studies abroad has shifted from how big the job losses are to whether there are job losses at all.

Up to the early 1990s, researchers found that on average a 10% increase in the US minimum wage caused a drop of 1.4% in US employment.

Significant effects were also found in France, the Netherlands and Spain. But more recently, newer statistical techniques have confused the picture.

Many US studies are now finding the minimum wage has no effect on employment.

The young affect the overall impact
Some even find that certain industries increase employment as the minimum wage goes up. Others on the other hand maintain that there is a damaging effect on employment, particularly for teenage workers.

Recent European studies show similarly confused results even for youth employment in France.

It would seem that whatever your view of the minumum wage, there is a study with results waiting to back you up.

It is not surprising therefore that many doubt the possibility of consensus over such a sticky issue.

They could very well be right. But on one point a degree of agreement has been achieved.

The higher the minimum wage and the more young people it affects, the more likely it is to impact on jobs.

By international standards the UK rate of 3.60 is not particularly high, so large effects on employment here are unlikely.

But that does not mean no one will lose their job here after 1 April.

Links to more Minimum wage stories are at the foot of the page.


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