An increase in the national rate of minimum wage will hurt the very people the measure is intended to benefit, argues serial sector investor Luke Johnson.
Writing in his Financial Times column, Johnson, the backer of Patisserie Valerie and Draft House amongst others, said: “Minimum wage increases positively encourage companies to seek alternatives to labour, such as outsourcing or automation. Even restaurants can move in this direction. If restaurateurs are obliged to pay more, then watch them adopt technology such as computerised ordering and buy more ready- prepared dishes made in industrial plants with lots of machines.
“The hue and cry has gone up on both sides of the Atlantic among the righteous: raise the minimum wage! This ideological chant is considered an answer to poverty, inequality and even the route to productivity growth. But it is none of them: it is populist politics and bad economics.
If the price of labour rises, demand is likely to fall. That means fewer jobs. In the 21 EU countries with a minimum wage, unemployment is on average almost 50 per cent higher than in the seven countries without such legislation. Obliging business to pay staff more does not increase economic activity; it is merely redistribution but with added collateral damage.”
Johnson states that through the downturn he invested to develop companies and help to create jobs.
He says: “A large increase in the minimum wage in the UK would immediately freeze our hiring plans and cast doubt on future investments.”
He says that one of the tragedies of the minimum wage is that it is a tax on those companies that are large employers of the least well educated and those who do not possess scarce skills.
He says: “Citizens at the bottom are further squeezed out of the market because they have become more expensive. It is a form of punishment for that cohort.
“In Britain we have the nonsense of a national minimum wage, which means the same price for labour despite vast regional differentials in the cost of living, unemployment levels and so forth. The supposed science of a precise minimum wage is entirely undermined by this unfortunate truth. Implementing various minimum wages would be complicated – but it is ever thus when arbitrary regulations interrupt voluntary market exchanges.
“It sounds a lovely gesture to raise low pay. Impractical romantics see it as the moral thing to do. Who could possibly object, save a rapacious capitalist? What such theorists fail to realise is that it restricts opportunities, fuels inflation, discourages investment and promotes labour substitution. If governments are so keen on the idea, then they should exempt more low-income citizens from all income and payroll taxes. That would help make work more rewarding and make it more attractive to work than claim welfare. Working almost invariably offers more dignity and superior health outcomes than a life on benefits – which is why it is so important to defeat unemployment and support job creation, rather than hinder it.
“Raising minimum wages would hit the unskilled poor and inexperienced young hardest by killing job opportunities. How does that reduce inequality?”
