Alexander Bowen: The minimum wage would make more sense if it wasn’t the same across the country
Ask why this angle was chosen.
Alexander Bowen is a trainee economist based in Belgium, specialising in public policy assessment, and a policy fellow at a British think tank.
A national minimum wage is killing the North.
It might sound slightly hyperbolic but it’s true enough.
What this article is not, is an argument against the concept of a minimum wage generally or in the UK’s specific case. Articles about Sweden and Denmark not having a minimum wage, something that alongside being functionally wrong, have been done to death. So too has the trite journalistic insistence that disemployment is basic supply and demand – we have more than enough evidence that this isn’t the case, though it may be approaching the hinge point where it may be.
On Friday, the FT’s John Burn-Murdoch dropped a data deep dive on the death of the UK’s graduate premium – that with the graduate share of the workforce going from 20 to 40 per cent the graduate premium has been almost arithmetically slashed from 80 to 40 per cent. Importantly something that has not happened anywhere else – the Netherlands or the US, with HE expansions larger than our own, have seen their graduate premia rise 30 and 15 percentage points respectively – something Murdoch in part attributes to the minimum wage.
It’s something that the regional data clearly bares out too. In Northern Ireland the minimum wage is now 77 per cent of the median wage, in Wales 76 per cent, and in Yorkshire 75 per cent. In London, the only region where the graduate premium has not collapsed, it sits at just 52 per cent.
The national minimum wage has genuinely collapsed the premium for graduates in all but one place – and what actually is basic supply and demand is that if there is only one place where your labour is valued, then you will, if you can, move there. In having a national minimum wage, we have adopted a system then where graduates are incentivised to chase their premium, and leave their home regions, whilst near minimum wage workers, buoyed by commanding near-median wage and enjoying vastly lower living costs, are oversupplied in the regions that need them least.
In competition economics there’s a fairly simple test that is used to assess what constitutes a market – SSNIP, a Small but Significant Non-transitory Increase in Prices. Put simply it asks whether an imaginary monopoly selling a given product could raise prices by 5 or 10 per cent or whether customers would substitute away from it and to an entirely different product instead – if the answer is yes then the original company is not a monopoly. For a demonstration, imagine a scenario where one company sold all of the Chinese food in England and they raised prices by 10 per cent, so long as customers substituted their Chinese with an Indian then Chinese and Indian food would be …
Ask why this angle was chosen.
Alexander Bowen is a trainee economist based in Belgium, specialising in public policy assessment, and a policy fellow at a British think tank.
A national minimum wage is killing the North.
It might sound slightly hyperbolic but it’s true enough.
What this article is not, is an argument against the concept of a minimum wage generally or in the UK’s specific case. Articles about Sweden and Denmark not having a minimum wage, something that alongside being functionally wrong, have been done to death. So too has the trite journalistic insistence that disemployment is basic supply and demand – we have more than enough evidence that this isn’t the case, though it may be approaching the hinge point where it may be.
On Friday, the FT’s John Burn-Murdoch dropped a data deep dive on the death of the UK’s graduate premium – that with the graduate share of the workforce going from 20 to 40 per cent the graduate premium has been almost arithmetically slashed from 80 to 40 per cent. Importantly something that has not happened anywhere else – the Netherlands or the US, with HE expansions larger than our own, have seen their graduate premia rise 30 and 15 percentage points respectively – something Murdoch in part attributes to the minimum wage.
It’s something that the regional data clearly bares out too. In Northern Ireland the minimum wage is now 77 per cent of the median wage, in Wales 76 per cent, and in Yorkshire 75 per cent. In London, the only region where the graduate premium has not collapsed, it sits at just 52 per cent.
The national minimum wage has genuinely collapsed the premium for graduates in all but one place – and what actually is basic supply and demand is that if there is only one place where your labour is valued, then you will, if you can, move there. In having a national minimum wage, we have adopted a system then where graduates are incentivised to chase their premium, and leave their home regions, whilst near minimum wage workers, buoyed by commanding near-median wage and enjoying vastly lower living costs, are oversupplied in the regions that need them least.
In competition economics there’s a fairly simple test that is used to assess what constitutes a market – SSNIP, a Small but Significant Non-transitory Increase in Prices. Put simply it asks whether an imaginary monopoly selling a given product could raise prices by 5 or 10 per cent or whether customers would substitute away from it and to an entirely different product instead – if the answer is yes then the original company is not a monopoly. For a demonstration, imagine a scenario where one company sold all of the Chinese food in England and they raised prices by 10 per cent, so long as customers substituted their Chinese with an Indian then Chinese and Indian food would be …
Alexander Bowen: The minimum wage would make more sense if it wasn’t the same across the country
Ask why this angle was chosen.
Alexander Bowen is a trainee economist based in Belgium, specialising in public policy assessment, and a policy fellow at a British think tank.
A national minimum wage is killing the North.
It might sound slightly hyperbolic but it’s true enough.
What this article is not, is an argument against the concept of a minimum wage generally or in the UK’s specific case. Articles about Sweden and Denmark not having a minimum wage, something that alongside being functionally wrong, have been done to death. So too has the trite journalistic insistence that disemployment is basic supply and demand – we have more than enough evidence that this isn’t the case, though it may be approaching the hinge point where it may be.
On Friday, the FT’s John Burn-Murdoch dropped a data deep dive on the death of the UK’s graduate premium – that with the graduate share of the workforce going from 20 to 40 per cent the graduate premium has been almost arithmetically slashed from 80 to 40 per cent. Importantly something that has not happened anywhere else – the Netherlands or the US, with HE expansions larger than our own, have seen their graduate premia rise 30 and 15 percentage points respectively – something Murdoch in part attributes to the minimum wage.
It’s something that the regional data clearly bares out too. In Northern Ireland the minimum wage is now 77 per cent of the median wage, in Wales 76 per cent, and in Yorkshire 75 per cent. In London, the only region where the graduate premium has not collapsed, it sits at just 52 per cent.
The national minimum wage has genuinely collapsed the premium for graduates in all but one place – and what actually is basic supply and demand is that if there is only one place where your labour is valued, then you will, if you can, move there. In having a national minimum wage, we have adopted a system then where graduates are incentivised to chase their premium, and leave their home regions, whilst near minimum wage workers, buoyed by commanding near-median wage and enjoying vastly lower living costs, are oversupplied in the regions that need them least.
In competition economics there’s a fairly simple test that is used to assess what constitutes a market – SSNIP, a Small but Significant Non-transitory Increase in Prices. Put simply it asks whether an imaginary monopoly selling a given product could raise prices by 5 or 10 per cent or whether customers would substitute away from it and to an entirely different product instead – if the answer is yes then the original company is not a monopoly. For a demonstration, imagine a scenario where one company sold all of the Chinese food in England and they raised prices by 10 per cent, so long as customers substituted their Chinese with an Indian then Chinese and Indian food would be …
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