Tuesday, November 05, 2013

The minimum wage is unfair

The current minimum wage rate is £6.31 for people over 21 years old.

This is too high.

Back of the envelope maths:

£6.31 x 37.5 hours = £237 per week, or £12,300 per year
.
At current tax and national insurance rates this gives a disposable income of £11,182 per year.

Based on an amended version of my current budget (see below), this is plenty sufficient for a single person living in Windsor, renting a room in a shared house at £510 per month. You can find places quite a bit cheaper in less attractive areas.

I have included modest entertainment expenses but have reduced holiday spend to nil along with motor vehicle and IT depreciation. You're 21. If you're complaining, stay at home for a year or two and get a local job at the minimum wage. This will slash your expenses by some £7k if you can do without a car, giving plenty enough to buy a car and loads of gadgets in future years , and it will also leave plenty to chip in to the family bills.
 
Notice, you still have money to buy gifts and there is £200 for mishaps. No need for a payday loan. Just spend your money carefully.

Expenses
pmpa
Basic


Housing costs
5106,120




Fuel costs
80960
Phone bill
336
Groceries
60720



Ents
80960
Other insurance
10120
Haircut
12144




Ad hoc spend


Clothing
20240
Car ins'/MOT
50600
Holidays

0
IT depreciation

0
Car dep'n

0
Opticians
8100
Dentist
8100
Mishaps
17200
Gifts
43516
Total

10,816

The problem with the minimum wage is that it adds a hidden costs to society, not just companies. Imagine if the minimum wage was £100 per hour. Hardly anybody would be employed because very few people are sufficiently productive to justify this salary.

A similar thing is happening at a minimum wage of £6.31, but it's less obvious because the effect is more marginal. The free market idea is simply that if a young man or woman is willing to offer their services to a firm, at say £5 per hour, and if firm could benefit from their productivity, let's say to the tune of say £5.50 per hour, then the market should allow this person to be employed. Both sides win.

Even at this rate a youth of today who is living at home could live semi-frugally for a few years and save a fair bit. Indeed, if they stayed at home for 5 years, saving £5k per year, that right there is a deposit on a one bed flat in many parts of the country. In greater likelihood, a bit of experience and motivation would push them a little higher up the career ladder over this time period.

Instead, jobs for these people are not allowed to exist and anyone who offers such a job is at risk of prosecution by the law.

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