Minimum wage increase will hurt the poor

Commenting on the Chancellor's backing for an above-inflation rise in the National Minimum Wage, the Adam Smith Institute's Research Director Sam Bowman said:

"A minimum wage increase will hurt the poor, particularly young people and vulnerable groups like migrant workers. Most of the empirical economic evidence has found that increases in the minimum wage cause increases in unemployment. The evidence also suggests that minimum wage increases lead to slower job creation for low-skilled workers.

"Minimum wage work is usually a stepping-stone to something better where employees can acquire human capital. There is also evidence to suggest that minimum wages stop young workers from acquiring these skills that allow them to get better jobs in the long run, so today’s increase could have far-reaching harmful effects by keeping people in low-paid jobs.

"One way to actually help low-income workers would be to raise the income tax and National Insurance threshold to the current minimum wage level, which would give these workers a take-home pay equivalent to a minimum wage. That would require spending cuts or tax rises elsewhere, but it would be a responsible and effective way to improve the lot of the working poor that would carry none of the unemployment risks that this minimum wage increase does – in fact, it would create jobs.

"Increasing the minimum wage runs an indefensibly high risk of creating more unemployment and harming the people that supporters of the increase want to help. Even if the immediate impact is not large, this increase will lead to a long-run decline in job creation and standards for Britain's poorest workers. It will hurt the very people it is supposed to help."

For further comment please email sam@adamsmith.org.

The Adam Smith Institute is an independent classical liberal think tank based in London. It advances free markets and social liberalism to create a richer, freer world.

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