Minimum wage: who benefits?

The minimum wage is going up. It'll rise by 17p, to £5.52 an hour, in October. Alistair Darling says:

More than a million workers, two thirds of them low paid women will benefit from this announcement.

He doesn't say how much they'll benefit. Let's do some sums.
Take a married couple with two children, with one person working 40 hours a week.  Their wages will rise by £6.80 a week. How much of this will they keep?
31p.
Yes - less than a pint of milk.
Of this £6.80 rise, they'll pay £2.24 in income tax and national insurance. And they'll lose £2.52 in working tax credit and £1.73 in housing benefit and council tax benefit. That's a deduction rate of 95.5%. Details come from table 1.6d of this massive pdf.
For sure, I'm taking an extreme case - though isn't it scandalous that such ones exist at all? But a single childless person faces a deduction rate of 70%, and some lone parents one of 89.5%.
So, the benefits to many low-paid are tiny -  smaller than the gains to the Treasury in many cases.
And for this, the low-paid face an increased risk of losing their jobs or getting their hours cut.

Comments

[dearieme]

It is so disgraceful that you come to suspect that it's not really intended to make the working poor better off, but intended instead to give Labour people a warm glow of self-satisfaction, and the feeling that they've earned the right to wear their hearts on their sleeves.

[zorro]

"It is so disgraceful that you come to suspect that it's not really intended to make the working poor better off, but intended instead to give Labour people a warm glow of self-satisfaction, and the feeling that they've earned the right to wear their hearts on their sleeves."

This suggests you think the labour party normally does things for the people of this country rather than themselves. Very funny!

[Mark Wadsworth]

It is an outrage - the employee nets one-twentieth of what it costs the employer, ergo, a rise in the NMW mainly benefits the Exchequer (as well as destroying low-paid jobs).

Citizen's Income would sort this out, end of.

[VinoS]

The thing is, though, to reduce the rate of tapering would be very expensive. After all, instead of deducting 70% of any wage increase in benefit reductions, we could reduce this to 20%. But, that means that 50p in the £ of benefits that would be cut would now have to be paid to the lower-paid worker who gets a pay rise. That's fine, but i don't think the public at large is willing to pay _more_ in taxes to reduce marginal benefit withdrawal rates. If you can show they are, then I will be astounded.

[Neil Harding]

"increased risk of losing their jobs"

Are you having a laugh - it is easy for people to get a minimum wage job - virtually anybody could get one within a day of trying. Anyway this government has INCREASED employment by 2.8m since the MW was introduced and unemployment has fell to around 1m. Compare this to the 3m unemployed before the MW under the Tories.

"getting their hours cut."

Even if this paper you cite is completely correct that hours have dropped 'between 1 to 2 hours' then the 30% increase in pay under the MW more than compensates these workers. Working less for more money sounds a good deal to me. Anyway I'm sure they could get another part time job if they want extra hours.

[john b]

Surely it's a good thing that we-as-taxpayers are no longer subsidising employers to pay people a wage that is too low for them to subsist on?

A minimum wage set at an actual, living level seems less iniquitous than subsidising employers to pay people less than that...

[Chuka Umunna]

Chris - I note what you say - the increase is negated by benefit withdrawal. But what do you propose as the solution? How do we avoid this kind of situation when we have a plethora of means testing, which allows us to target resources at the most needy - it seems to me that universalism in benefit provision is something we cannot afford and people are not prepared to pay for, which leaves us with means testing but this is the advserse side effect of it. I'm no economist and I don't know how we can square the circle - any ideas?

[Chris]

Are you having a laugh - it is easy for people to get a minimum wage job - virtually anybody could get one within a day of trying.

Bollocks. Try doing it in a poor area, without your own transport, going all the way across town to pick up one application form (usually you can only get them at the places themselves) and then find that you need to go back a few days later to hand it in, and back another time for an interview, when you really need to spend that time queueing at the job centre and at the benefits officve, otherwise you won't eat. Man, I really wish you economists would stop looking at models and come into the real world. Not that an economist often goes into the real world of breadline job hunting.