The Irony of the Impact of the Tory’s Minimum Wage

The world of British political economics has gone topsy turvy.

Who would have thought that the Conservatives would raise the minimum wage?

Who would have thought that those working in the care sector would have a problem with it?

Two interesting articles came out this week, both highlighting the issues around pay in social care.

The first is a pleasantly balanced analysis of the new minimum wage policy. One of the key graphs in the piece shows which industries are most troubled by increases in minimum wage. This scatter plot shows how much of an industry’s total costs are wages.

social care min wage

When drawing conclusions from the graph, there is a danger that we read “wages” as “minimum wage payments”. But assuming that the inclusion of all wages in all sectors makes little difference, this shows that increasing the minimum wage will have a significant impact on total costs of residential care.

Another article, this time from the BBC,  suggests that care workers aren’t even getting the equivalent of minimum wage as they are often not paid for travelling between clients, or on call.

This is very revealing about individuals’ vulnerability in wage negotiations. Anyone in a sector where there is even the slightest imbalance of bargaining power in favour of the employer would be extremely reluctant to question the payment protocol. In areas like this where the employee is often the secondary income for a family, the need to ensure minimum pay is less urgent.

The need for unionisation in these job is absolute. Even a committed freemarket-arian would find it hard to justify employers breaking the law simply because employees were too reluctant or unable to access the legal system.

There have also been claims this week, again noted on the BBC, from the UK Homecare Association said unless extra money was put into the sector, the new minimum wage would leave services “unviable” and requiring an extra £750m next year alone.

There is a temptation to conclude that a Conservative minimum wage will put pressure on services that correct market failure but have minimal effect on retail and wholesale businesses. But of course any minimum wage increase would have the same effect – and the Labour Living Wage would be even more significant.

What will be revealing though is how the government responds to the pressure on the care industry. My suspicion, based on the usual Picklesian agenda, is that they will dump financial and moral responsibility on to local authorities – and the resulting collapse in adequate provision will only be salvageable by market intervention.

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