What can be done to stem the populist anger felt by people who feel adrift in the modern economy? Across the world politicians have been seizing on the same remedy: raise the minimum wage. Businesses and economists have long claimed this would cost jobs: yet that’s not what happened when Germany introduced a minimum wage of €8.50 in 2015, to help those who’d “slipped through the cracks of its otherwise strong economy”. A new study by the EU agency Eurofound has shown that wage inequality in Germany fell in 2015 by more than in any other EU country, as did wage disparities between rich and poor regions, yet with no damage to job prospects.
So now Germany is set to raise the minimum by a further 4%. It has been a similar story here in Britain: a higher minimum wage introduced in 2016 has led to a 10% increase for those on the lowest wage rung: yet employment rates are at record highs. But it’s no panacea, and not just because raising the minimum beyond a certain level can backfire. The enduring problem is that even if better paid, most of those on the bottom rung never climb up to the next. Until we solve that one, people at the bottom will continue to feel adrift and angry.
(Sarah O’Connor, Financial Times)
The fact is that those on a minimum wage spend all they get and save little or nothing. This translates into higher sales for basic goods everywhere and a stronger economy. Germany seems to be a good example. The corollary is that if you have a huge giveaway to the rich most of the proceeds are either saved or spent on luxuries. If you want to prime an economy you should boost the income of the poorest people and watch as it is all spent immediately on necessities. I am no economist, but this is common sense. Not, however, to politicians dependent on election funds from the rich.
One of the most noticeable things on both sides of the Atlantic is that, as retail businesses disappear at the hands of online commerce, the empty spaces left on the high street or shopping mall are often taken by small fast food businesses or cheap restaurants. This is because they are relatively cheap to set up, require small-ish capital outlays and it is easy to find workers. But their owners can be the most resistant to paying higher minimum wages. We who shop online are making uncomfortable beds for ourselves.