The Living Wage will be highly beneficial to a lot of people, but there are downsides to the policy

There is no doubt that George Osborne’s national living wage, to be launched next year, is a policy with its heart in the right place. For example, more than three and a half million women, almost 30 percent of the female workforce, will receive a pay rise as a result of the legislation.

Nevertheless, increasing the minimum salary level does not address the problem of why so many women are being paid the minimum wage in the first place. Arguably, the market should dictate how much a worker is paid, if you listen to the market, it will tell you how much is required to pay a worker for an hour of labour. Should we, as the American political commentator William F Buckley used to say, avoid being lulled into the ‘phony world’ of the minimum wage?

The free market

You could argue that the living wage will further undermine the free market price mechanism that allows wages to rise. Instead natural increases at the behest of the market, rather than forced increases, could act to push people out of the ‘minimum wage’ bracket, rather than sustaining them there indefinitely.

There is also the risk, as the American economist Milton Friedman used to say, that the rising minimum wage will push those who do not have the skills to justify the new higher living wage into unemployment. The living wage could act to make low skilled jobs more difficult to attain, while at the same time companies may reduce the amount of new hires they make in order to be able to afford the larger wage bill.

Baseline standards

There should, of course, be a robust minimum wage in the UK as there is no doubt that it plays a very important role in ensuring that there is a baseline standard of living for low income workers, however it should not act to either keep people in unemployment or restrain them from bettering their income.