Minimum and Living Wage

Ensuring that no job can pay less than a certain amount, by law, seems like a good thing on the face of it. Otherwise unscrupulous employers would get away with paying their staff less, less than those people can manage to live on. Then below a certain amount, unless you work more hours than is healthy, you’d be better off on Job Seeker’s Allowance (which again is an amount that is determined as a minimum required to live on here in the UK) until you find something better.

The problem is, when the government stipulates a rise or a switch from a ‘minimum wage’ up to a higher ‘living wage’ (which is encouraged), the wage level becomes artificial, rather than dictated by what the market can perhaps manage.

What a lot people seem to think is that a rise in wages means they will be magically better off. This is a misconception, for if staff have to be paid more, that extra money has to come from somewhere.

It’s a similar issue to that which comes about when interest rates are below inflation; to save money and earn interest on that money means you are actually worse off, because overall the cost of things has increased at a greater rate during the time you have been sitting on your money.

Where does the extra money come from to pay for the new higher wage?

• Your boss’s pocket? – rarely, unless unless he/she was making lots of extra money from the work you were doing for him/her.
• By increasing the cost of the things supplied/sold.
• By reducing/removing job perks or bonuses (it was highlighted on a BBC Radio 2 Jeremy Vine show last month (May) that some people have found their job perks reduced so much to meet the new living wage standard, that they are now financially worse off) – job perks could be something as simple as free tea/coffee for staff, or reducing brake times, or something more significant; it all adds up.
• By reducing staff or the hours they work; which would typically mean the remaining staff have to do more.

Therefore, by enforcing an artificial, higher wage, we are no better off – the “cost of living” will increase and/or we will have to work harder or be made redundant. With less people in work there will be less buying, and then there is the knock-on effect of this.

The current system works by the amount of money flowing round it – I wrote early this year about money being a pyramid scheme [link] and they generally fail.

My personal circumstance is that I’m self-employed. I use the minimum/living wage as a benchmark for which to aim for, in order to be fair on myself relative to everyone else (since I’m part of the same system). Typically I earn less than minimum wage based on a 30-hour (full-time working) week, but I’m comfortable and have no children to feed; I have developed a way of living that is simple compared to many (yet comfortable to me), and I think this is the key (although I recognise that the current system would fail if everyone lived like me!);

It’s not about earning more, for which the mindset is then believe you have more to spend, but to live on less – cutting out a lot of the “stuff” you don’t “need”.

More money doesn’t = more happy.

I acknowledge that many people in this so-called developed world struggle, and fail, to make ends meet each week, people who do indeed live off a bare minimum, and a minimum/living wage should be in place to assist those people; and perhaps wages should drop for the highest earners to assist in meeting this requirement (although not every company/business has staff on a high enough wage to do this). I suppose it’s about making wages more fair; by reducing the gap between low and high earners – and how many people could be paid a minimum/living wage by the millionaires and billionaires of this world, even if there is nothing for them to do?

References:

http://www.livingwage.org.uk/news/new-uk-living-wage-rate-has-been-announced