Have We Hit the Ceiling on Minimum Wage?

Rishi Sunak's showing his true blue colours in The Sunday Times by arguing that we've reached the limit with the minimum wage...

https://www.thetimes.com/comment/columnists/article/rishi-sunak-what-i-got-wrong-on-the-minimum-wage-ncm9nmgmf

Politically this is not popular.... most politicians love to boast about raising the minimum wage. It’s simple, it sounds good, and it gets voters nodding along. Who doesn’t like a pay rise?

But Sunak’s angle is that economics is all about trade-offs. You can’t keep giving without something else giving out.

And he sees one of those cracks showing in the jobs market for young people....

Where Are The Jobs for Young People?

Sunak’s worried about youth employment. Too many young people in Britain are either out of work or not even trying to find it.

He puts it like this:

"When you keep hiking the minimum wage—especially if actual productivity isn’t keeping pace—employers hesitate. They look at a teenager fresh out of school and a worker with fifteen years under their belt, and now both cost about the same."

Who are they going to pick? Nine times out of ten, it’s the person with experience, which ends up narrowing the employment opportunities for young people.

Good Intentions With Blunt Edges

The minimum wage started out as a tool to fight exploitation.

The mess starts when we pretend wage hikes can take the place of actual economic growth. People can earn more because businesses are doing better and can pay more, or because the government says they have to, even if nothing’s improved. The first way lasts. The second? Only works for a while.

Push too far and employers push back—they hire less, cut hours, lean on automation, or jack up prices. At that point, it’s not just a matter of more money in people’s pockets.

Not All Parts of Britain Are Created Equal

Here’s another problem: the effect of the minimum wage isn’t even across the country.

In some of the more deprived parts of Britain the minimum wage looks very much like the average wage... A small shop in Wigan or Blackpool might just find it difficult to keep increasing people's wages....

What works for one part of the UK can mess up another.

The Productivity Problem We Can’t Shake

Dig a bit deeper, and the real issue is productivity. Britain’s not getting much more efficient. Workers aren’t producing that much extra value, year after year.

But pay keeps climbing—thanks to labour shortages, inflation, and government mandates. There’s only so long companies can keep up before something snaps.

So maybe the real problem isn’t the minimum wage. It’s that the country isn’t getting better at making things, which would make those higher wages sustainable.