Minimum wage increase good for the economy?

Posted on March 2nd, 2011 | Categories - News

Altering taxes will not solve the UK’s economic problems.

An increase in wages could help to better the British economy.

Minimum wage should be raised to spur on economic growth and strengthen UK finances, according to an independent think tank.

Steve Coulter, an associate fellow of the Social Market Foundation said: “The Government should set out a strategy to significantly increase the national minimum wage over the medium term in order to encourage firms to upgrade the skills of their workforces, boost productivity and reduce ‘low-road’ employers’ dependence on state wage subsidies like the working tax credit”.

He added that changing the tax system alone will not be enough to rebalance economic growth.

The SMF’s proposals have been criticised by other industry experts who believe a rise will only result in a net loss for employers and higher level of unemployment.

Sam Bowman, head of research at the Adam Smith Institute said: “The proposals are ludicrous. Wages are related to people’s productivity, and people whose labour is worth less than the minimum wage will be a net loss to employers”.

He continued: “Raising the minimum wage would price even more people out of work when jobs are already scarce, and raise labour costs for businesses. Wage controls that price unproductive people out of work are the last thing that the unemployed need – the SMF should be trying to learn from the mistakes of the 1970s, not repeating them”.

Currently, minimum wage is set at £5.93 an hour for people under the age of 21 and £4.92 for 18 to 20 year olds. Workers between the ages of 16 and 17 earn £3.64 an hour.