Britain's minimum wage is now too high

The minimum wage in the UK is now £12.21 per hour. Rachel Reeves has hinted that it will rise to £12.70 per hour after the budget. That works out to £23,114 per annum for a 35 hour week. But the lowest graduate starting salary is just £25,726.

Obviously a new graduate in an accounting firm or law firm should see rapid payrises after they pass their professional exams. But there are a lot of lower managers earning just above the minimum wage wondering if the extra responsibility is worth it.

The minimum wage has increased from 40% of the median wage in 2001 to 62% now.

Here is the chart:

source

As you can see from the chart, the big jump in the minimum wage took place under the Tories - and for very good reasons. They discovered that the govt was having to top up low-paid people's pay with tax credits - so-called "in work benefits". So they froze tax credits and hiked the minimum wage to put the burden on the employer. In other words they were trying to reduce the employer subsidy introduced by New Labour.

But have the hikes in minimum wage gone too far? There are signs that some businesses that depend on low paid workers are starting to struggle.

There is a silver lining in all this. Remember that the trigger for the industrial revolution was that British wages at the start of the 19th century were the highest in Europe, forcing manufacturers to look at buying machines. The innovations of the industrial revolution had been there in the late 18thC, but it took high wages to stimulate demand for the machines and make them mainstream.

Let's hope the hike in minimum wage persuades businesses to automate and improve productivity.

What about the resulting job losses? That can be dealt with by clamping down on immigration hard and reversing some of it.