Wages in the UK are not only determined by shrewd bargaining between employers and employees, but by law. The concept of a “minimum wage” – first introduced by the Tony Blair government in 1999 and turbo-charged by the conservative chancellor George Osborne, who coined the catch phrase “national living wage” – aims to lift the wages of the worst paid continuously on a yearly basis, no matter what.
This April, the floor for hourly pay in the UK was lifted yet again by 10 per cent to £11.44, or €13.30 at current exchange rates – more than double the rate of inflation.
Many developed countries have legal minimum thresholds, even Malta has one, albeit at less than half the UK level, with €5.34.
Some countries, like the US, have a federal minimum wage as well as regional lower limits on a state level. Workers in California for instance are entitled to an hourly pay of $16 and of $20 if they work for a fast-food chain like McDonald’s – a rule which does not extend to smaller franchises or family businesses.
Some US states do not legislate pay, they apply just federal law. Italian lawmakers refrain from wage interference. Austria leaves wage setting to collective agreements between employers’ associations and labour unions.
Rules for minimum payments are a legal remedy where labour unions are weak or do not exist. They prevent the worst forms of exploitation and raise living standards for the lowest paid, if on a modest scale. As wage laws concern a sizable sector of the electorate, they enjoy bipartisan political support from the left and the right. The need
to subsidise the poor with transfer payments from the tax payer is lessened.
Fears that mandated higher wages would diminish employment opportunities proved retrospectively unfounded. Since their introduction, the UK had to continuously import workers from abroad. After Brexit, the number of immigrant workers quadrupled, now coming not from Europe but predominantly from Asia and Africa. After the COVID pandemic, low-paid jobs were abandoned. As a result, job openings surged, wages far above minimum pay had to be offered to lure people back into work. For businesses bereft of workers, mandated minimum pay was their least problem.
But this was then. Higher wages are tightly linked to inflation. They are a substantial part of the cost to produce stuff and to provide services. And they fuel consumption. Hence the attempt of central banks to slow down the economy by raising the cost of credit in the hope to slow both consumption and employment.
It makes little sense to pay higher nominal wages when inflation eats away on the purchasing power of consumers. To keep mandating higher wages in a dangerously inflationary environment makes the task of cooling down consumption that much harder.
Once wage rises are automated, businesses have to look for ways to pay for it. They can charge higher prices, accept ever lower profits or think of other ways to lighten the burden of increasingly expensive labour. Producers will be incentivised to boost “productivity”, i.e. to invest in automation, replacing workers with clever robots.
Rules for minimum payments are a legal remedy where labour unions are weak or do not exist- Andreas Weitzer
Service providers cannot boost productivity so easily. A care worker cannot change more than one adult nappy at a time. Businesses will search for shortcuts.
First, they will squeeze their workers. A cleaner will be made to mop more rooms. A social worker may lose perks such as a company car or free commute. A waiter will have to make do with fewer colleagues, serving more tables at unfriendly speed.
In a next step, supremely qualified stuff, demanding more than the minimum pay and who expect professional advancement (making them soon even more expensive), will be replaced by less-qualified workers, with shoddier performance. Competition will not come to the rescue, as every competitor is incentivised to cheapen service quality in similar ways. Consumers will have to make do with ever lower standards.
Ultimately, good service will only be provided where it easily proves to be profitable. Customer complaints are delegated to chat bots. A restaurateur will decide to keep her restaurant open only at the busiest times, closing on days of weaker footfall.
There’s a huge incentive to hire people for fewer hours, to outsource abroad and to convert low-paid jobs into “businesses”. Think of delivery and transport services like Bolt,
Deliveroo or Uber. Drivers, cheated by obscure algorithms, are paid a pittance while their relentless work counts as a one-man business without social insurance, holiday entitlement, or that “minimum pay”. It’s a legal form of forced labour.
Ultimately, the concept of hiking minimum pay in all industries equally, and mechanically every year, is flawed. Good pay goes a long way, admittedly, and it will take a long way until payment is good for all. Perhaps too long. Yet there are many things which are equally important. Things like job security. An employer who is loyal to her employees, who recognises hard work and lauds a job done well.
A workplace which offers the flexibility to look after kids or ailing elders. The opportunity to contribute to decision-making in a company. A collaborative working climate, enabling friendly interaction with colleagues and customers, giving the daily satisfaction of helping fellow workers and clients. A work environment without health hazards. The possibility to advance, to learn new things, to attain better qualifications. Imagine a CEO who is not awarded a bonus, share options and an astronomically higher salary for sacking his workers, but for improving their lot.
And then there are the things which even people earning much more than the “living wage” can only hope for, like affordable housing, good schools and first-class health service. In the UK, one has to be a millionaire to enjoy that. And in Malta?
Andreas Weitzer is an independent journalist based in Malta.