Wednesday, November 22, 2023

The Great Minimum Wage Swindle


O frabjous day! Callooh! Callay!” 

The Guardian reports that the ‘National Living Wage’ will increase by a pound an hour: ‘Nearly 3 million low-paid workers will receive a pay increase of almost 10% next spring after the chancellor announced an increase in the national living wage to £11.44 an hour. Jeremy Hunt said the earnings of full-time workers would rise by £1,800 a year as a result of a move that the Low Pay Commission (LPC) said met the 2019 Conservative pledge to end poverty pay in the UK. The increase from £10.42 to £11.44 comes against a backdrop of a cost of living crisis in which inflation peaked at 11.1% – the highest in 40 years. Eligibility for the national living wage (NLW) will also be extended by reducing the age threshold from 23 to 21.’

From the October 1995 issue of the Socialist Standard

The Labour Party's support for the concept of a minimum 
wage is not based on its concern for low-paid workers, in fact, Labour's real aim is to cut the expenditure, in the form of 
benefits, of the capitalist state it hopes to inherit.

The Labour Party went into the 1992 general election committed to introducing a legally enforced national minimum wage which, they said, would eventually amount to two-thirds of the level below which half all wage and salary earners fall (or the “median wage”, as the statisticians call it):

Labour will introduce a national legal minimum hourly wage, starting at a level of 50 per cent of the mid-point of men's earnings (the median) . . . Four million people will benefit form this minimum wage. Over time, Labour will increase the minimum wage as a proportion of earnings to a point where no-one is paid less than two-thirds of the median male hourly rate ” (Looking to the Future, 1990, p. 37).

In today’s money this would give an hourly rate of about £5.50, or a minimum wage for a 39-hour week of £214.50, or over £ 11,000 a year. Of course there was never any chance that this was going to happen. You can’t legislate into being wage increases of this order, amounting in some cases to over 50 percent. Capitalism just does not work that way. Its economic mechanism responds not to government decrees but the realities of profit-making in competitive markets. The government could indeed pass a law aimed at ordering employers to pay a minimum wage at this level but, as this would cut into profits, the result in an economy based on the economic law of “no profit, no production” would be an economic downturn and a growth in unemployment.

Shrinking figures

The Labour leaders—who are nothing these days if not economic “realists”— were well aware of this. Which was why they proposed to reach the goal of two-thirds of the median only gradually, starting by introducing a law to fix the minimum wage at half it. This is the £4.15 or so to which Bill Morris and the T & G and other unions are still committed. But even this is pie-in-the-sky which will never come about, and wouldn’t have come about even if Neil Kinnock had entered Number Ten in May 1992. The economic mechanism of capitalism just won't wear it.

Since Kinnock went, Labour, first under Smith and then under Blair, has backtracked even further. It is still committed to the concept of a national minimum wage but not to any specific amount. This, they now say, is to be fixed by a commission made up of employers, unions and others and, we predict, would amount to about the same as the old Wages Councils, abolished by the Tories in 1993, used to come up with: about £3 or so an hour (in today’s money).

In other words, the most Labour would do would be to restore the pre-1993 situation, extending it to all industries and services so as to be able to call it a “national” minimum. This latter will only be window-dressing since most industries pay their workers above this hourly rate, otherwise they would have been covered by a Wages Council.

But why does Labour—now under arch-realist Blair—want to keep to the idea of a minimum wage, especially as it is going to earn them a lot of stick from the Tories? Since they now take the support of active trade unionists for granted, it can’t be a sop for their benefit. The reason lies elsewhere: it is part of their plan to reduce spending on welfare benefits as their contribution to trying to solve the fiscal crisis of the capitalist state.

A bit of theory

The basis of capitalism is the wages system, under which the work of production is done by people selling their particular ability to work to an employer in return for a wage or salary. Wages for particular types of skill are fixed by market forces at the amount of money workers require to buy the things needed to maintain their particular skill, plus an element to cover the cost of raising a family to replenish the labour force when they retire.

In the long run workers must get paid this amount, otherwise they won’t be able to maintain their skill, and their employer will begin to suffer in terms of absenteeism, increasing labour turnover, shoddy work and lower productivity.

So, in a sense, market forces—aided by pressure from unions—already tend to ensure that wages don’t fall below a minimum level: that below which the workers wouldn’t have enough money to maintain their skill adequately. However, there have always been some kinds of work—those requiring little training or experience and performed for a mass of small employers—where, because supply permanently exceeds demand, and because trade union organisation is difficult, market forces bring about a wage that is below this level.

What this means is that, in the terminology of Marxian economics, these workers get paid less than the value of their labour-power. They don’t get paid a “fair” wage even by capitalism’s standard of fairness, i.e. the full value of what they are selling.

This creates problems both for their immediate employers and for the employing class as a whole which has to foot the bill for the increasing ill-health and destitution that result from paying workers over a long period less than the value of their labour-power.

The problem for their immediate employers is that, even if they wanted to be a “good” employer and pay their workers the value of their labour-power as a means of getting their money’s worth in terms of work done and profits made, they can’t because of competition from other employers. None of them dares make the first move for fear of losing business, indeed of going out of business.

The solution that has been adopted in Britain has been two-fold. First, to introduce minimum wages in the trades concerned and, second, to introduce Family Allowances.

It was the Liberal government in 1909 that took the initiative and set up trade boards, later called Wages Councils, in the “sweated trades”, such as the retail trade, hotels and catering, and the rag trade, where workers tended to be persistently paid a wage below subsistence level. Under this system the employers, the unions and government officials met to fix a minimum hourly rate for the particular trade. It was an offence for an employer to pay below this rate. There was no national minimum wage, only different minimum wages for the different trades.

Subsidising employers

Family Allowances (now called Child Benefit) were introduced by the wartime coalition government in 1945. But, as the pamphlets Beveridge Reorganises Poverty and Family Allowances: A Socialist Analysis which we in the Socialist Party brought out at the time explained, this was not at all what it appeared to be: a money payment by the capitalist state which would leave all those with two or more dependent children better off by that amount.

Under capitalism and its wages system any regular payment received by workers in employment is going to have an effect on wage levels. This is because, as explained, wages tend to be fixed at a level which provides workers with enough money to buy what they need to maintain their particular skill in working order and also to bring up a family to take their place in the labour force when they are too old to work. If the state makes a contribution towards these costs, this means the workers’ immediate employer doesn’t have to.

The effect of any generalised state payment to workers in employment will be to depress, not necessarily the standard of living, but the wages paid by employers. This was why, in fact, Family Allowances were for a long time opposed by the trade unions. As we pointed out at the time:

"The real issue is not that certain unscrupulous employers may seek to save out of wages amounts paid in Family Allowances, but that once it is established that the children (or some of the children) of the workers have been ‘provided for' by other means, the tendency will be for wage levels to sink to new standards which will not include the cost of maintaining such children ” (Family Allowances, pp. 11-12).

In 1971 the then Tory government of Edward Heath breached a hitherto sacrosanct principle of the welfare state that no means-tested benefits should be paid to any worker in employment. They introduced a new benefit called Family Income Supplement (now called Family Credit), in effect a means-tested Family Allowance, payable to workers in employment whose income was below the poverty line, i.e. more or less what they would have got had they been on what is now called Income Support.

The logic behind this was to provide an incentive for people to take a job, however miserably paid. The result has been unsatisfactory from the point-of-view of the capitalist class as a whole. The cost of all state benefits payable to workers in employment (housing benefit, council tax benefit as well as Family Credit) has spiralled to over £2 billion a year.

Some employers—those in the modern sweated trades—have benefited. Knowing that the state will bring workers with children up to the poverty line they have been enabled to pay these workers below-the-poverty-lines wages. As Labour's deputy leader John Prescott has put it:

Family Credit is now part of wage negotiations, with employers offering £1 an hour and saying: ‘I know you can‘t live on that, but if you nip down to Social Security, they’ll make up the difference (Observer, 28 August 1994).

Family Credit and other in-work benefits have, in other words, acted as a subsidy to these employers. This has caused resentment amongst other sections of the employing class who have to pay this subsidy out of taxes that, in the end, fall on their profits. This is where the Labour Party has come in with a proposal to help.

Labour to the Rescue

In their July 1995 campaign pack Low Pay. A Tory Failure, the Labour Party repeats again and again that their minimum wage is designed to reduce state benefits paid to workers in employment:

A minimum wage will not only act as a floor for pay. It will also ensure that in-work benefits do not act as a subsidy for low-paying and poor employers. ”
"Taxpayers would benefit because a floor under wages would reduce the need for tax handouts to low paying employers. Today employers have an incentive to lower wages at the taxpayers' expense."
"Every taxpayer is now paying £100 a year for in-work benefits for people in low-paid work. People who have no protection against exploitative pay rates are forced into dependency on the benefits system whether they like it or not. And employers have no incentives to raise wages because they know the benefits system will subsidise the poor wages that they pay by what is, in effect, a tax handout to employers. ”

What Labour is proposing (and are rumoured to want to do over maternity pay) is what the Tories did over Sickness Benefit: to cut back on state payments by shifting a part of the cost on to employers in the form of statutory sick pay. Labour’s aim is to shift some of the burden of maintaining workers on low pay at the subsistence level on to the employers who have been benefiting from the present system.

But what about the workers? The low-paid workers existing on the poverty line. It’s not going to make much difference to them since the argument is about who is going to pay their subsistence income and in what proportions not about its level.

As far as the low paid are concerned what will happen is that what the right hand gives away in the form of a slightly higher minimum wage for some the left hand will take away in the form of reduced Family Credit. People on Family Credit get their benefit reduced by 70p for each £1 by which their income increases. So if their hourly wage was increased from, say, £2.50 to £3 they would only be 15p an hour better off not 50p. And if the increase lifted their income above the qualifying level for Family Credit they would find themselves worse off through losing the accompanying entitlement to housing benefit and free prescriptions and dental treatment.

Labour’s national minimum wage is not a genuine reform in the sense of a measure to bring about some improvement in working class conditions. It’s an economy measure designed to save the capitalist state money. They don’t fool us. Let’s hope that they don’t succeed in deceiving too many of the low paid either.

Adam Buick

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