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Raising the minimum wage will really boost jobs growth

By Eamonn McCann

Published 22/04/2015

Ebony Hughes
Ebony Hughes

Ebony Hughes works two jobs in Durham, North Carolina, in order to make ends meet for herself and her daughter. It is not unusual for her to start her "full-time" job in a care home at 6am and finish her shift in a Kentucky Fried Chicken outlet at 11pm. Both jobs pay the minimum wage. She depends on state support to bring her overall income up to a basic, liveable level.

Ms Hughes' case was one of a number quoted in a lengthy article in the Washington Post last Saturday advocating a substantial increase in the federal minimum wage of $7.25 (£4.87) an hour.

In her 2001 book, Nickle and Dimed, published after a year working in a series of minimum-wage jobs, investigative journalist Barbara Ehrenreich estimated that an individual making the minimum would have to hold down two full-time jobs to make a decent living. The minimum rate back then was $5.15. Increases since have almost, but not quite, kept pace with inflation.

The Post article drew on a report published earlier this month, The High Public Cost of Low Wages. The research team behind the report, at the University of California at Berkeley, reckoned that social security support for minimum wage employers - including vast and vastly profitable firms like KFC, McDonald's and Walmart - is costing US taxpayers more than $150bn a year.

If the minimum wage were the equivalent of the amount which the social security service says is necessary to give working people an acceptable life, the state would be saved this huge amount.

The prominence given to the article in the Post reflects growing support - even from the political centre - for a campaign by lower-paid workers for a $15-an-hour minimum and the right to join trades unions. A day of action in the fast-food sector last Wednesday saw workers walk off the job in 236 centres across the States.

The standard argument against raising the minimum rate is that this would result in job cuts - detrimental to the very people whose interests campaigners say they are serving.

The same argument is made here to the point of tedium on every phone-in programme which touches on the subject. Are low wages not preferable to the dole queue alternative? But the US research suggests that holding wages down in order to preserve jobs misses the point entirely.

An examination of the impact on jobs in six cities and 21 states which have raised the minimum above the federal base-rate shows that the effect on employment has been statistically insignificant.

A great majority of companies absorbed the rise through lower staff turnover, higher productivity and small price rises, which had no discernible effect on companies' trading positions.

The ratio in the US between the federal minimum and the median wage - the median marks the point on the wage scale where half of workers earn more and half earn less - has been falling for years.

At a current 38%, it lags behind the Republic and the UK (48% and 47% respectively) and even further behind the likes of France and Turkey (61% and 72%).

This is the most telling measure of all, defining the relation between the standard of life of minimum-wage workers and the standard of life of the rest of the bottom half of earners.

Experience in San Francisco makes the general point. There, local intervention by the city council has gradually increased the minimum wage to $11.05, increasing to $12.25 next month. The council aims to reach $15 an hour by 2018.

San Francisco has had better recent jobs growth than North Carolina, where Ebony Hughes slaves - it's hardly too strong a term - for less than half the projected San Francisco rate.

More dramatic still, jobs growth in Oregon, where a mass protest movement has already forced a rate of $15, outstrips North Carolina by a considerable margin.

The report found that, as with tax credits and housing benefits here, nearly three-quarters of recipients of state benefits were members of working families (the current UK figure is just over 50%).

Thus, the federal government spends $127.8bn a year subsidising low-pay employers, while states chip in a further $25bn per annum. And these figures do not include in-work tax credits and childcare assistance.

The clear conclusion is that rock-bottom wages do nobody any good - apart from companies whose profits are swollen by state subsidy.

That would be the state which Right-wing economists never give over telling us should butt out of the economy, abandon "restrictive" measures like the minimum wage and depend for jobs growth on giving free rein to market forces.

Belfast Telegraph

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