UBI or the minimum wage?
youth labour now cuts production costs), and rises rapidly when it is applied to under 18s. It is clear from looking at figure 3 that the NMW had a large effect on youth unemployment, although this effect was probably exaggerated in part by the financial crash of 2008 (which hit the UK particularly hard) and high levels of eastern European immigration, which have not been controlled for in figure 3. Interestingly, the impact the NMW had on youth unemployment was largest during 2008, with actual youth unemployment reaching a peak of 8.3% above estimated unemployment. This is because during a recession, firms often respond to reduced profits by lowering wages to stay afloat. However, the NMW stopped them doing this, leading many to either lay off workers or go bankrupt. After the financial crash, the gap between the predicted and actual youth unemployment became relatively steady, suggesting that the increase in youth unemployment caused by the NMW (and probably in part by immigration and the financial crash) had plateaued at between 6 and 8% (König, Ropers and Bunchmann, 2019). This makes the unemployment effects of the minimum wage in the UK seem a lot more severe than the theory suggested. However, figure 3 shows the unemployment level predictions before they have been controlled for increased immigration or the financial crash’s impact on growth, so the UK unemployment data would be slightly higher than the predicted levels anyway (König et al, 2019). Another important detail is that all the figures presented in this study were unemployment statistics, and as mentioned earlier, when analysing a minimum wage unemployment levels tend to rise much more than employment levels drop due to the increased supply of labour. The unemployment figure is still relevant, it is just important to remember that it does not mean 6-8% fewer people have a job. Furthermore, an analysis of the minimum wage and its increases in 25 OECD (Organization for Economic Co-operation and Development) countries, including the UK, between 2000 and 2014 found an even smaller effect. It found that on average, a 10% rise in the minimum wage resulted in a decrease of employment of just 0.7%, and an increase in unemployment of just 0.64% (Kim and Lim, 2018). However, it does acknowledge that while small increases in the minimum wage do not have much effect on employment, a large shock to the market may lead to more severe consequences. Despite this, these results still support the idea that the labour market is operating on the inelastic part of the supply and demand curves and that a minimum wage is having very little effect on employment in the UK. Everything considered, it is clear that although the minimum wage certainly decreases employment in the UK to some extent, this decrease is significantly smaller than the amount it increases the wage low- skilled workers receive, and the employment side effects of a minimum wage are not a major disadvantage of the policy.
2.3
Summary of the minimum wage
Overall, the main disadvantage of the minimum wage is the rise in unemployment that follows it, although even this does not appear to be too significant. The question of whether this is still too large a price to pay for the increased income those left with jobs receive is more ethical than economic. Supporters of the minimum wage argue that without it, even people with jobs would be living in poverty, making it necessary, even if not ideal. However, minimum wage jobs are often entry level positions, not long-term roles – in the USA 40% of minimum wage workers did not have a job the
104
Made with FlippingBook interactive PDF creator