SCRAPPING the minimum wage (NMW) for apprentices and under-18s could help cut youth unemployment and boost growth, the Institute of Economic Affairs said today.
Countries without a minimum wage like Germany have far lower youth unemployment rates, the IEA argues, while Britain’s has soared since it was introduced in 1999.
The think-tank’s recommendation contrasts starkly with that of the chancellor – George Osborne said he wants the NMW hiked to £7 per hour.
The chancellor has argued that the economy is strong enough to cope with the increase, though Treasury analysis indicates it would cost 14,000 jobs.
The IEA’s report also comes as the Trades Union Congress (TUC) calls for more moves towards the higher living wage, intended to give a better standard of living to low-wage workers.
“Extending the living wage is a vital way of tackling the growing problem of in-work poverty across Britain,” TUC boss Frances O’Grady said yesterday.
“We need to see a far greater commitment to pay the living wage from government and employers, and modern wages councils which could set higher minimum rates in industries where employers can afford to pay more.”
However, the IEA estimates a full move to the living wage could cost around 150,000 jobs.
“The NMW is not a targeted poverty reduction tool. 46 per cent of individuals in households defined as in poverty are workless: a minimum wage can do nothing to help them,” the report said.
And the IEA said Britain could become more like Germany if it scraps the NMW for young workers, and those who have been out of work for a year.
“In April 1999 the unemployment rate of under-25s was 23.5 per cent in France and just 12.9 per cent in the UK. Today the gap has narrowed substantially with French unemployment 25.4 per cent against the UK’s 20 per cent,” the report said. “Germany, which doesn’t have a minimum wage, has youth unemployment of just eight per cent.”