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By Pete Moore On December 14th, 2011

How’s that minimum wage coming along?

Unemployment has hit a 17-year high and the young particularly are suffering. That’s the cue for Chris Grayling (Minister of State for Work and Pensions – as if they have anything to do with the state) and his shadow to traipse around the studios demonstrating what they don’t know. How depressing it was to listen to this pair on BBC 5Live. All Grayling could mutter was some Keynesian dross about the job programmes and infrastructure investment the government is coming up with. His shadow could only come up with some Keynesian dross about how there is not enough demand for jobs in the economy.

What utter cobblers.

Think about it: we live in a world of unlimited human demands and needs, of unlimited imperfections. Things always need to be made and done. The structural unemployment problem, therefore, is a disconnection between hirers and hirees. What is that disconnection? There is an oversupply of labour at current prices, therefore prices must come down.

When a supermarket has too many biscuits in stock, it discounts biscuits. We have too much labour at current prices, so we must discount the cost of labour. There is no lack of demand, just a lack of demand at current prices. The prime example is with the young. Many fit, healthy, youngsters cannot get a job because it is too expensive to employ them. This is the minimum wage, so trumpeted by wealthy politicians, putting a floor on the price of relatively inexperienced and unskilled labour and effectively outlawing many different types of work, typically that first couple of rungs on the ladder which the young once took into work. Because of the minimum wage those rungs have now been knocked out.

There are an astonishing number of ways in which the state makes it more expensive to hire labour. Income taxes and national insurance are a tax on labour. Millions of laws and regulations increase labour costs also. If even just a fraction of these interventions were abolished overnight the unemployment rate would collapse very quickly. Business would begin hiring so quickly it would be a spectacular sight to behold.

“Ahhh”, I hear some people say, “but people want good-paying jobs”. Of course, but many are realistic and willing to work for low to modest wages to get their working lives going. The argument about good-paying jobs implies it is better for people to be unemployed, as if low wages are exploitative. This is absurd. In a free labour market there is no exploitation because we accept the wages we can bargain for ourselves.

Great exploitation exists under the current interventionist regime, where a couple of million are robbed of the chance to work for their own profit, firms cannot hire for their own profit, and the productive class is looted to pay benefits to those who are unemployed because the of the state’s distortions of the labour market in the first place.

Structural unemployment of the type we now have is a modern phenomenon. From ancient times to the 19th-Century, the primary sources are remarkably free of any mention of it. Why is that? It’s because long-term unemployment is a creature of the interventionist, regulatory state. So I reject all the blathering of social managers like Grayling and his shadow. They can think only of increasing the interventions which are the problem in the first place. All that stands between where we are and zero unemployment is that their kind admit to their obvious errors. How much higher does unemployment need to go before they realise the obvious?


  1. What annoys me most of all is listening to the sheer hypocrisy, opportunism and false concern shown by Ed “Dead Man Walking” Millipede every PM’s Question Time.
    He belonged to the government which devalued school exams by “improving” results year on year, and encouraging the introduction of mickey mouse university degree courses.
    Who shifted the unemployed onto disability benefits and found creative ways of manipulating the figures, and stuck two fingers up to those young couples who believed in working for a living..
    This government inherited a mess from Millipede’s lot, and that has been compounded by the worldwide economic fallout.
    Blair was a sly, smarmy people (especially American) pleaser. Gordon Brown an old fashioned unreconstructed, bad tempered Socialist, and with Millipede Junior, the trio of Ugly Sister’s are complete.

  2. Interesting post Pete, and I agree with most of it.

    Current minimum wage rates are as follows:
    £6.08 per hour for workers aged 21 years old and over
    £4.98 per hour for workers aged 18 to 20 years old
    £3.68 per hour for workers above school leaving age but under 18 years old
    £2.60 for apprentices under the age of 19 years old or aged 19 years old or over and in the first year of their apprenticeship

    It is unlikely that these rates of pay are themselves a significant reason for the levels of youth unemployment that we are now seeing. Also, millions of low-skill jobs have disappeared from our economy to China and elsewhere. Although the expansion of retail has taken up a lot of the slack, retail is now in steep decline.

    As an employer who talks daily with other employers, it is the other barriers – especially all the red tape surrounding holiday pay, maternity pay, health and safety etc – which are more significant. That and the poor levels of education and the low level of work ethic. Too many in this age bracket would prefer the soft option of the weekly dole cheque and getting up at 11.00 am.

    One obvious solution is workfare. After (say) six months on the dole, you must take a minimum wage job or no more dole. The problem is that many minimum wage jobs are hard work, which is why seasonal farm workers are now overwhelmingly from Eastern Europe.

    And this is not just a UK problem. I heard a report from Alabama this week. They have cracked down on illegal Hispanic labour, but the local labour has proved totally unfit to replace them, despite high local unemployment. As a result, much of the cotton has been left to rot. The ultimate triumph of welfarism.

  3. Yah

    The Mexican worker generally will work as hard as he can all day long, including in the hot sun.

    This is not an argument for illegal immigration, it is just an observation that I think that the other US types here would share.

  4. If we want to improve the unemployment situation we need to do five things. 1. We need to simplify employment legislation and regulation. 2. We need to assist small businesses mainly by making things easier for them to hire and fire staff. 3. We need to allow small business to pay market rates rather than require him/her to pay a minimum wage. 4. We need to relax oppressive business taxation. 5. We need to re-asses the welfare system.

    Anybody want to bet that employment rates will not improve?

  5. It is surprising to see that Germany does not have a general minimum wage

    But most countries, including prosperous ones like Korea and Canada, do.

    But Afghanistan is the best. They have a minimum wage for government workers that is twice the level for private sector workers!!