US, UK and Germany Raise Hopes of Lowest-paid Workers

On both sides of the Atlantic, the opening weeks of 2014 year raised the prospect that improving growth prospects in some of the world’s major economies could improve the fortunes of their lowest-paid workers. The period of more than five years since the onset of the global financial crisis has seen no ceiling on the salary awards for top earners, but increasing pressure on workers at subsistence level.

In the US, President Obama used his State of The Union address last week for reviving a proposal to hike the federal minimum wage from its current US$7.25 per hour to US$10.10. Earlier this month Britain’s chancellor of the exchequer, George Osborne, suggested that the UK economy – still mired in recession as recently as late 2012 – could now afford an above inflation rise in the UK adult minimum wage of £6.31 (US$10.40) per hour.

Significantly, even post-increase both countries would trail Australia, which has enjoyed 22 consecutive years of economic growth and escaped relatively unscathed from the 2008-09 global crisis. This success is reflected in the Australian minimum wage rate of US$16.88 per hour, the world’s highest and surpassing even Europe’s two havens of serious wealth Luxembourg (US$14.24) and Monaco (US$12.83).

Countries whose recent economic growth rate has been more anaemic but which still maintain a relatively high minimum hourly wage include France (US$12.22), a pioneer of minimum wage legislation since 1950, and Belgium (US$11.69). Despite France’s current austerity regime and 11% unemployment, two increases were conceded within seven months in 2012 aimed at boosting consumer spending.

In Germany, the eurozone’s single largest economy, there is no minimum wage (as is also the case in Italy) but its conservative chancellor Angela Merkel agreed last November to introduce one in response to demands from the centre-left SPD party. Last autumn’s election in Germany was marked by reports of ruthless employers taking advantage and paying hourly rates of between €1.37 and €2.54. Under the proposal a minimum rate of €8.50 (US$11.60) per hour would be phased in by January 2017.

Deepening Inequality

Obama’s speech cited the fact that the US minimum wage at its current hourly rate of US$7.25 represents around 20% less real spending power than it did 25 years ago. It came in the same week that JP Morgan Chase’s compensation and management development committee recommended paying its chief executive (CEO), Jamie Dimon, remuneration of US$20m for 2013 – a 74% increase on the previous year.

Citing such awards, Obama said: “Those at the top have never done better. But average wages have barely budged. Inequality has deepened. Upward mobility has stalled.”

“The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by, let alone to get ahead, and too many still aren’t working at all. So our job is to reverse these trends.” Indeed, based on 2011 data from the Organisation for Economic Cooperation and Development (OECD), the US ties with Japan for having the lowest minimum wages relative to the average worker’s wage.

 

In both countries, the minimum wage as a percentage of the median wage is only 38%, against 60% for France which scores highest. The respective figures for Australia and the UK are 54% and 47%.

The fulfilment of Obama’s wish depends on the progress of the Fair Minimum Wage Act, which is due to come before the Senate floor for debate in March. The Act calls for a minimum hourly wage of US$10.10 to be introduced by July 2016 which, according to think tank the Economic Policy Institute, would benefit around 12.8% of the US workforce. However, five US states have already passed legislation to bring that date forward, with up to 14 more set to follow their lead.

While surveys indicate that nearly three in four Americans support such an increase it is still likely to encounter opposition from some Republicans, who argue that it would lead to many workers losing their jobs. “When you raise the cost of something, you get less of it,” commented Speaker of the House of Representatives, John Boehner, a line that is likely to be supported by many of the US’s major employers such as the fast food chains.

In the UK, the Conservative party – dominant partner in the ruling coalition government – originally opposed the establishment of a national minimum wage in 1999. Osborne conceded that in retrospect the party had been “on the wrong side of the argument”.

Since the coalition took office nearly four years ago the minimum wage for workers aged 21 and over (lower rates apply for younger workers and apprentices) has risen annually, from £5.93 per hour to the current £6.31. However, the increases have lagged behind Britain’s stubbornly high inflation rate, which has only recently returned to its target figure of 2%

“I want to make sure we are all in it together, as part of the recovery, which is why I want to see above-inflation increases in the minimum wage, precisely because the British economy can now afford that,” Osborne asserted in an interview with the British Broadcasting Corporation (BBC), although like Obama he faces dissenting voices.

John Cridland, director-general of business group the Confederation of British Industry (CBI), retorted: “Recommending the rate of the national minimum wage must be a matter for the Low Pay Commission, as the chancellor recognises.

“An unaffordable rise would end up costing jobs and hit smaller businesses in particular. Any increase in wages must reflect improved productivity.”

John Allan, chairman of the UK’s Federation of Small Businesses (FSB), suggested that any increase in the minimum wage should not exceed the inflation rate as many firms operated within ‘very fine margins’ and were ‘struggling with rising costs in areas such as utilities and business rates’.

4 views

Related reading

hanjin-shipping
donald-trump
job
New consumer banking head for Citi Asia Pacific