Wages are too low

John Redwood MP makes common cause with the labour movement in stating that wages in the UK are too low

Working for peanuts
Sir John Redwood MP
On 19 July 2012 12:18

Let me make common cause today with the labour movement. Wages in the UK are too low.

Instead of spending so much time complaining about the pay of a minority who are well paid in the private sector, maybe we should spend more time asking how more people can enjoy higher pay. I am not one of those hypocritical commentators on a good salary always urging pay restraint on others.

Before the labour movement gets too excited, however, I do believe a couple of other things about pay. I do not think you can legislate successfully for higher pay. It has to be earned. 

The problem with minimum wage legislation is if you set it too high you drive jobs away, and if you set it too low it has no beneficial impact. If you get it somewhere in the middle it does not deliver great living standards, and may still encourage non compliance and a larger black economy.

Labour’s minimum wage has left many people on low pay and in receipt of benefit top-ups so they have a more reasonable income. The UK’s problem is we do not have enough companies with enough power in the marketplace to command the prices and sell the volumes we need to pay more people higher pay. This is what economists call our productivity problem.

Sensible people in the Union movement accept that we need a culture of “something for something” or “more for more”. It may not mean working harder or longer hours, though that does usually  bring forth higher pay.

It may mean working smarter. Our best manufacturing businesses in the UK know and do this already. They put the machine power at the elbow of their employees. They train their staff. The treat them with respect and pay them well as the factory achieves its targets.

The Chinese economy is advancing rapidly with large increases in real wages fuelling more domestic consumption, which in turn pays higher domestic wages. It is a virtuous circle. In their case it it is still taking place from a base position of much lower  average wages than we enjoy.

There is no reason, however, why an advanced country cannot also create a virtuous circle. It is about training and motivation, about reward that people want and believe they can achieve.

The Rt Hon John Redwood MP is the Member of UK Parliament for Wokingham and the Chairman of the Conservative Economic Affairs Committee. His articles are cross-posted on his blog by agreement

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