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The costs of social provisions
such as those of the EEC Social Charter or Chapter
(taken from pp199-200 of Patrick Minford - Markets Not Stakes - Orion, 1998)

We examine the effects on the UK in low- and high-impact scenarios for the three main aspects of minimum wages, union powers, and worker rights.
The effects, which all come about because employer costs are raised, are summarised in Table 8.4 (all of them derived from the Liverpool Model of the UK).

Table 8.4 The effects on UK output and unemployment of social measures

I. A minimum wage

where wage is (a) 50% of male median (b) 2/3 of average
     
Long term effects on:    
output (%) -1.5 -5.0
unemployment    
% of labour force +1.8 +5.0
million +0.5 +1.4

 

II. Union power simulation

Union power rises: (a) to mid-80s level (b) to 1980 level
     
Long term effects on:    
Output (%) -3.0 -5.8
Unemployment    
% of labour force +1.3 +4.3
million +0.4 +1.3

 

III. Rise in the social cost burden on employers

  (a) by 20% of wages (b) by 60% of wages
Long term effects on:    
     
output (%) -4.4 -11.0
unemployment    
% of labour force +3.0 +18.0
million +0.9 +5.5

 

IV. Combination of Minimum wages, union power rise, and higher social cost burdens on employers (combination of I-III, (a) and (b))

  Least Most
Long term effects on:    
     
output (%) -9.0 -20.0
unemployment    
% of labour force +10.0 (extreme value)
million +3.0 (extreme value)
 
 

It can be seen that these are dangerously large costs, even in the least-cost scenario with its cost at 9% of GDP and 10% on unemployment. The high-cost scenario is obviously so damaging, at 20% of GDP and an unquantifiable rise in unemployment, that w e must assume any UK government would prevent it occurring even if only by invoking the Luxembourg Compromise with its implicit threat of leaving the EU.

Patrick Minford is professor of economics at Cardiff Business School and visiting professor at Liverpool University.
 
Patrick Minford's home page
 
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