Thursday 23 April 2015

The UK Economy. Part two: the minimum wage and top earners' pay.

Before the last Labour government introduced the national minimum wage, the media and the conservative party were up in arms. Employers wouldn't be able to pay it and people would go out of business, they claimed. It didn't happen. Now, many people are calling for a living wage. That basically means a wage that is enough to live on. Surely that should be the minimum wage? Instead, the benefits system is topping up low wages where they can't afford to keep a roof over their heads or food on the table.

The cost of living keeps rising, despite the best efforts of a few huge supermarkets driving more and more suppliers to bankruptcy in their pursuit of the cheapest price in town (more on this in part three). Housing in particular is so expensive that only a small percentage of people trying to get onto the housing ladder are currently able to. In some areas, even people on significantly higher than the average salary can't afford to. So that leaves renting, and landlords are raking it in, all over the country but especially where homes are in shortest supply. Many Tory MPs are landlords and many of their donors are too. So why would the Tories ever want to build enough affordable homes?

I do think that the way things are for many smaller employers in the UK (and employers generally, although larger ones are much to blame for 'the way things are' - again, more of this in part three) means that some will struggle to pay a living wage. I would suggest a system whereby new employers and very small companies (1-10 employees) wanting to expand could apply for temporary relief which would be paid to them to help them cover the living wage. These applications would be assessed based on the companies' overall pay structure and finances in general. It would be rejected if, for example, management were seen to be taking huge salaries for themselves, or making unnecessary purchases (e.g. overly expensive premises or company cars) to bring their finances down and thus necessitating the state assistance. This way, instead of the state subsidising low pay permanently, they would help companies into a position where they could afford to pay the living wage without help.

Flying in the face of claims that companies can't afford to pay the living wage, is the increases in executive pay over the last decade and more. Senior salaries are now so out of control that even some right-wing economists are calling for companies to be forced to have employees sitting on boards of directors (the idea being that they would be able to veto large salary increases for the top earners if the lowest earners see very small or no increase in their wages). I would add that the amount of money being siphoned out of the UK into shareholders' off shore bank accounts is another piece of evidence that certainly large employers can afford to pay the living wage.

The final point in support of increasing wages, and one that I have made before, is the Henry Ford philosophy. Ford realised that he would make a lot more money if his employees could afford to buy his cars. So he raised his employees' salaries considerably. Not only were they happier and more productive, they bought his cars and Henry Ford made a huge amount of money. What blinds today's big companies from seeing that if more people could afford their products and services, the more money they would make? The answer might be in Part Three.

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