“I don't think young people eat less than old people - that's my experience anyway” – Jeremy Corbyn at the Unison Conference in Brighton, 2017.
What sound logic from the leader of the Labour party, on why he should raise the minimum wage to the national living wage levels for all workers over 16.
The national living wage is the obligatory minimum wage currently payable to workers aged 25 or over, and as of April 2018, will rise to £7.83 per hour. On the other hand, the national minimum wage is only payable to only those under 25, and is also subject to increases in April.
Current national and minimum wage rates, Source: Gov.UK
These wages are expected to surge upwards even further in the coming years. By 2020, the Conservatives plan to increase the national living wage to £8.75 per hour, and Labour to £10 per hour.
Both are dramatic rises, but the national living wage under a Corbyn led government would reflect an increase to levels 20% higher than if the wage grew in line with current earnings growth forecasts, would be available to all workers from the age of 16. Under the Tories, this number drops to 5%, and is available only to those over 25.
Higher minimum wages can be effective in boosting the wages of low income earners, but Corbyn’s proposal to significantly increase the minimum wage in such a short space of time would have detrimental impacts on both households and firms. Higher wages for workers in the short term would be offset by reduced profits or higher consumer prices, whilst in the long term may actually lead to greater unemployment as low skilled jobs become untenable.
Moreover, an Institute of Fiscal Studies report found the benefits from minimum wage increases are concentrated around middle of the income distribution, rather than low income households. This is due to the fact that many individuals on low wages are in middle or high-income households as a result of their partner’s earnings, and that many of the lowest-income households have no one in work at all.
Research has shown that as the minimum wage is raised, it increasingly threatens the jobs of workers in low skilled, routine occupations, where machines are becoming progressively easier to introduce. 57% of young adults classified as “inactive” (i.e. unemployed and not students) live in low income households, and a large portion of these low-skilled workers enter the labour market into jobs which can be automated with relative ease. These individuals are at risk of being priced out of the job market and replaced by machines, and as such may face difficulty getting a foot on the employment ladder.
The 2017 Labour Manifesto presents yet more policies in their “20 point plan”, which advocate for job security and equality for workers, yet threaten the employment prospects of many young people. Among them are Corbyn’s proposals to ban zero-hours contracts and unpaid internships.
Zero-hours contracts can be mutually beneficial to both the employer and employee. Students in particular, can greatly benefit from flexible working hours. Whilst firms are not required to guarantee any hours to an employee, employees are equally entitled to decline any work offered by their employer. These workers are also entitled to actively seek out and accept work elsewhere.
Data from the Office of National Statistics shows that 34% of the 1.4 million active employment contracts which do not guarantee a minimum number of working hours are taken up by 16-24 year olds. Interestingly, the average employee on a zero-hours contract actually works 26 hours per week, with 57% of those employed not seeking any more hours. Sure, in some cases zero hours contracts have their downsides, however Corbyn’s proposal to “Ban zero hours contracts – so that every worker gets a guaranteed number of hours each week” ignores the practical benefits that zero-hour contracts offer to many young British people.
Labour’s ban on unpaid internships particularly affects undergraduate students seeking to gain valuable, and in most cases necessary, experience before entering the workforce. The party’s pledge to “Ban unpaid internships – because it’s not fair for some to get a leg up when others can’t afford to” is yet another misguided policy which will ultimately harm university graduates.
Data on internships is scant, but it is estimated that there were over 100,000 internships available to undergraduates in 2015, and that only 1 in 5 of those are unpaid. Corbyn’s claims also come on the back of a survey which reported that when choosing an internship, only a tenth of respondents prioritise payment as the most important decision making factor.
The immediate and obvious impact of forcing firms to offer paid work experience will be a reduction in the quantity of internships supplied to university students. 60% of interns are hired in organisations with fewer than 24 employees, and it is these organisation’s profits which would likely be the most heavily threatened. Smaller businesses would instead choose to not offer internships at all, particularly if firms were forced to pay interns anywhere near Labour’s £10 minimum wage.
Whilst Corbyn’s propaganda and rhetoric make him particularly attractive amongst younger voters, his employment policies should have the opposite effect. Youth unemployment rates currently stand at 12%, and will likely rise much higher if such policies are pursued. Interventionist approaches which raise the minimum wage so dramatically, ban zero-hour contracts and prohibit unpaid work experience will adversely affect the short and long term employment prospects of young workers. The role of the government should be to create a labour market which allows young people a smooth transition into the workforce, not one which jeopardises their access to it.
Jeremy Corbyn is right – young people don’t eat less than old people, but an increasing number of young British would be faced with even smaller grocery budgets under Labour’s employment policies.
DISCLAIMER: The views set out in this blog post are those of the individual authors only and should not be taken to represent a corporate view of the Centre for Policy Studies