Oops, sorry you use that code format.

Well there are three kinds of lies...

Seriously, people are indeed sold on the whole minimum wage thing, but it's hardly sorted out poverty in the US, has it?

It creates a false threshold within the market, so obviously it corrects itself above the new point. It's basic economics, and really only the same as the government fixing minimum pricing (as they do in France) - i.e. it screws the market.

The problem is that it makes manufacturing in the UK even more uncompetitive, as foreign markets can undercut even further. Plus there is the shoe-shop analogy...

The lowest wages existed in boutiques. They were easy enough jobs, and if you needed a bit more money you'd go get a job in a factory. Now all industries are pegged to the minimum wage (just to remain competitive), so why work in a smelly factory? Hence the arrival of foreign labour which animates people so much.

Many factories have still had to raise wages further, meaning their costs are rocketing and staying in business is no longer a profitable venture.

I have a couple of points to add to this interesting post.

Firstly I'd like to point out that while for much (not all but much) of the last ten years the CPI has been above the RPI - this does not mean it will always be so. Indeed with housing costs likely to fall over coming months and years that could well reverse.

secondly I'd like to issue a defence of the minimum wage - which though on a simplistic level can drive inflation - on a better understanding can drive productivity growth and improve competitiveness and reduce inflation.

(yes Lee - I may be clueless about american politics, but I know about some other things. )

ceteris paribas

simplistic economics assumes ceteris paribas holds true in real life. It does not.

If the labour market in the real world were a simple short term graph of supply against demand then a minimum wage above the market wage would lead to unemployment or inflation (which is a fall in wages) or a combination of the two.

But in reality ceteris paribas (meaning all else being equal) does not hold true.

As such while a minimum wage above the market wage will cause a reaction - those reactions are diverse.

for example, the market can push down wages (through inflation) it can push up the value of work (capital investment and training) or it can reduce the number of jobs (unemployment).

In truth it does all of these things to some extent and many more besides. The gamble with the minimum wage is in effect that it will do more of the middle option than is needed to cancel out the other two.

ie - rather than lay people off, firms invest in their workforce to raise its value to match the new minimum wage.

Given the rise in productivity, gdp, and employment seen since the NMW was introduced, it has probably worked. Obviously in theory it may have been set at a lower rate than anyone was being paid, but in reality I'm sure we all knew people earning as little as £1.50 an hour in 1997.

So in defence of the minimum wage - it can be a spur to push up productivity, training, career development, and can even spur the clustering of higher value sectors in place of low value mass production.

a great example of that is the UK's lead in high value textile manufacture - speciallising in short runs of materials on commission - these firms were often firms that in the 60s still churned out mass produced material that the UK can't compete with Pakistan on.

There is certainly a case to be made about the inevitability of businesses such as manufacturing always to be "on the way out" simply due to a wider range of factors that make it cheaper to do elsewhere...I'm not entirely sure if the loss of manufacturing jobs by themselves is the tragedy some make it out to be, only if people are then not given the opportunity to reskill and a enter new markets. I'm not entirely sure that has been truly adopted either though.

However with regards to your last comment Margin...yes, it'll be very interesting, but I'm sure they won't bother until they have a really good idea that the change will benefit them for at least a term in office if not more.