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Minimum Wage Policy in Great Britain and the United States

Minimum Wage Policy in Great Britain and the United States

by Jerold L. Waltman
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  • Product Details

    ISBN-13: 2900875866009
    Publisher: Algora Publishing
    Publication date: 06/28/2007
    Edition description: New Edition
    Pages: 246
    Product dimensions: 6.00(w) x 1.25(h) x 9.00(d)

    About the Author

    Jerold Waltman is R.W. Morrison Professor of Political Science at Baylor University. He is the author of two titles with Algora and four previous books including The Politics of the Minimum Wage (2000), and the editor of three others. His articles have also appeared in a number of professional journals along with magazines and newspapers.

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    At their inception, minimum wage policies in both Great Britain and the United States were intimately tied to other aspects of social welfare: pensions, housing, health care, and public assistance. In the United Kingdom, the same pre-World War I Liberal government that produced the Trade Boards Act 1909, Britain's first minimum wage statute also passed the Old Age Pensions Act 1908, the Labor Exchanges Act 1909, the Housing and Town Planning Act 1909, and the National Insurance Act 1911, which set up systems of unemployment and health insurance. In the United States, the Progressive movement of the early twentieth century sought to attack social ills on a variety of fronts, and it was this movement which produced the first state minimum wage statute, in Massachusetts in 1912. At the federal level, it was the New Deal coalition that finally managed to secure passage of the Fair Labor Standards Act of 1938, the national minimum wage law, after an initial experiment with minimum wage demands in 1933 as part of the National Industrial Recovery Act. Sandwiched between these efforts, it obtained congressional approval for the Social Security Act of 1935, which not only created systems of old age pensions and unemployment insurance but also contained what became the nation's chief public assistance program, Aid to Families with Dependent Children. In both countries, policy planners envisaged a close connection among all these pieces of legislation, the combined effects of which it was hoped would go some distance in alleviating poverty and reducing inequality.

    This seamless policy web continued for a while, but in time the minimum wage got severed from its welfare state parentage. Inthe United Kingdom, after a rapid expansion of the trade board system during the First World War and an unsuccessful effort to establish a uniform national minimum wage in 1921, the minimum wage retreated to the margins of the state. Serious discussion of the matter largely disappeared, and by the late 1920s even the Labor Party had stopped mentioning it. The trade boards receded to the shadows. Then, when Ernest Bevin became Minister of Labor in the wartime cabinet he set about transforming the entire trade board apparatus from one designed to secure a minimum income for low-wage workers into a system for encouraging collective bargaining, something he accomplished with the Wages Councils Act 1945. Meanwhile, William Beveridge was drawing up his famous blueprint for postwar social policy. His widely hailed 1943 plan focused solely on social insurance and public assistance as ways to relieve destitution, failing to even mention the minimum wage. The Labor Government of 1945-1951 subsequently married his proposals to long-advocated measures for health care and housing as it set about erecting the postwar welfare state. At no time during these years of reform were any serious discussions held regarding a national minimum wage. In the post-war years, as the recession Bevin feared did not materialize, the trade boards limped along; for all intents and purposes, they remained largely invisible to most of the public. When Mrs. Thatcher entered office, though, her implacable animosity to economic regulation of any kind led to their being first emasculated then completely abolished.

    The minimum wage's place in the national policy matrix lasted a while longer in the United States. President Truman viewed it as a cornerstone of his Fair Deal program, and even as late as 1961 the Kennedy administration was devoting more effort to broadening and raising the minimum wage than it was to improving public assistance. In fact, in the early days of the New Frontier, the minimum wage was taken up before any other anti-poverty proposals. It was only with the Johnson administration's War on Poverty that the minimum wage was decidedly eclipsed by public programs. Although not hostile to the minimum wage, the Johnson administration's policy planners did not see it as a major approach to fighting poverty. Pushed from the center ring, it has since remained consigned mostly to the periphery of welfare state debates. A fierce but brief controversy flares when proposals to raise it move onto the floor of Congress, but little serious thought has been given to its place in the overall system of social welfare.

    Several explanations come to mind for the misperceptions that plague the minimum wage. For one, public expenditure programs are undeniably more efficient poverty-fighting instruments in one sense: they channel money to people more directly. Whether set up as social insurance or as public assistance, transfer programs can put cash straight into the hands of all qualified recipients. In principle, a rational system can be set up to establish whether a person qualifies, either by having made contributions to a social insurance fund or by demonstrating a lack of resources. A formula can then be applied to determine how much he or she should receive, and the funds can be automatically dispersed. The designated beneficiary now has the monies available to move himself or herself out of poverty. The minimum wage, on the other hand, is a bit more cumbersome. It cannot, for instance, help the unemployed. Further, a certain number of minimum wage workers - spouses in casual employment or young people earning pocket money (historically more common in the United States than Britain) - are not necessarily from families that are in poverty.

    The long postwar boom was also partly responsible. Once cash transfer programs were created, they could grow almost effortlessly as public budgets of the period grew. Economic growth generated ample revenues for government, and allocating a certain percentage of this bounty to social welfare programs seemed a humane thing to do. The public, political elites, and policy makers could all feel good about society's efforts to make life decent for all, and it cost almost nothing to do so.

    Minimum wage politics were decidedly different. Business interests remained and remain adamantly and resolutely opposed to the whole idea of a minimum wage. The legislation is ideological anathema to much of the business community, mainly it seems because it interferes with what in their view is a basic business decision. It legitimates, that is, governmental regulation in general. Moreover, on the practical side, there is indeed a certain burden involved in having to maintain the required records and then being subjected to the annoying demands of inspectors. Overcoming this opposition demanded that those favoring broader and/or higher minimum wages win bruising political battles at each turn. These were political struggles that progressive forces could and sometimes did win, of course, but there was a natural reticence to stoke these fires, especially when increasing the social welfare budget produced so much less controversy.

    Additionally, the nature of policy making provided another advantage for social welfare expenditure programs over the minimum wage. Each expenditure program gave birth to a governmental agency charged with the tasks of determining eligibility and dispersing the funds. As usual, such bureaucracies became embedded in the policy making process, as they continually put forth policy proposals to "improve" their field of responsibility. Furthermore, they developed a "turf" that had to be defended, in part to protect the recipients but also in part to protect jobs and promotions. These bureaucratic institutions were highly visible parts of the state, and both political appointees in the executive branch and important legislators became accustomed to working with them. Aside from a handful of inspectors, however, minimum wage laws have no bureaucracy with a vested interest in the policy's continuation or expansion.

    Nevertheless, by far the most important reason for the marginalization of the minimum wage was intellectual. The British sociologist T.H. Marshall laid out one of the earliest and clearest statements of the seminal statement of this position, and his position became the bedrock of welfare state theory.[2] Marshall argued that rights had gone through a three-stage process. First, basic civil liberties had been secured in the eighteenth century, followed by the acquisition of participation rights in the nineteenth. The third set of rights, developed and codified in the twentieth century, was the right to share in the largesse of the society. Marshall and his followers came to argue that the right to receive benefits from the state, therefore, was as fundamental an aspect of citizenship as freedom of speech and the right to vote.

    This position was neither economically, politically, nor morally sustainable. It was not economically sustainable because the postwar boom could not last forever. It was not politically sustainable because it drew no distinction between contributory social insurance programs, which maintained their popularity because of their universality, and public assistance programs which divided the public, in people's perception in any event, into givers and takers. Finally, it was not morally sustainable because it neglected any obligation to contribute to society.[3]

    It is perhaps impossible to know whether an attack on the welfare state would have occurred in any event. In fact, though, it coincided with the economic constrictions that began in the mid-1970s. Personified by the administrations of Ronald Reagan and Margaret Thatcher, but backed by an intellectual vanguard schooled in neoliberal economics, the assault on the welfare state has been unrelenting since those years. Faced with this onslaught, supporters of the welfare state in both Britain and the United States opted to vigorously defend public expenditure programs. It was a battle, however, that they were destined to lose, though some continue a guerilla campaign even yet.

    Their failure was rooted in a confusion of ends and means. The goals of a viable welfare state are twofold: to do everything humanly possible to eliminate poverty and to provide a corrective to the economic inequality produced by the operation of the market. The means selected to accomplish these ends need to be honestly evaluated in terms of their economic and social consequences, their administrative practicality, and their long-run political viability. Cash transfer programs indeed have a role to play; however, they are not the essence of the welfare state, but only one aspect of it. The direct provision of services and a minimum wage are equally important strategies. No effective defense of the welfare state can rest solely or even primarily on policies engendering cash payments to individuals.

    Minimum wage policies and their surrounding politics are, consequently, at an important crossroads in the United States and Britain. In the United States, there is a new vitality to minimum wage policies at the state level, but even more importantly a vibrant living wage movement has sprung up at the local level. As with the original minimum wage movement, the current effort is following a hallowed American tradition of securing new policies first at the state and local level. In Britain, the Blair Government adopted and steadfastly defended a National Minimum Wage. In fact, as Blair prepared to leave office, the British public overwhelmingly accorded it the honor of being his greatest legacy.[4] It outdistanced the other top two items - finding a peace settlement in Northern Ireland and securing steady economic growth with nearly full employment and low inflation - considerably, 54% to 42% and 36% respectively.[5] At the same time, a small but dedicated group of citizens based largely in East London has been working for a living wage. Their efforts that have borne some fruit in both the private and public sectors, resulting in improved wages at several banks, for instance, the recent establishment of a living wage unit within London's city government, and the securing of a living wage agreement to accompany London's successful Olympic bid.

    In what follows, I have sought to accomplish two objectives. First, I want to describe and analyze the current operation of minimum wage policies and politics in both countries. Where are we and how did we get here? For Britain, I chronicle the events leading up to the enactment of the National Minimum Wage, and then discuss its subsequent evolution. Turning to the United States, I cover the almost moribund but still important federal minimum wage, and then trace developments on the state and local front. After that, I take up the accomplishments of the living wage movement in each nation. Second, I want to assess whether or not contemporary advocates for heightened minimum wages are laying the groundwork for a rejuvenated welfare state. Are they fashioning a public philosophy that will make the minimum wage once again a central feature of the welfare state, or are they heading down other paths?

    Before we embark on these two tasks, though, we need to lay some foundation stones by surveying the general aspects of minimum wage policy and examining the history of minimum wages in the two countries.

    [1] This act created minimum wages for only four industries. The level of the wage was to be set by a separate board for each, the details of which are discussed more fully in chapter 2.

    [2] T.H. Marshall, Citizenship and Social Class (Cambridge: Cambridge University Press, 1950).

    [3] There is some doubt whether Marshall himself believed that social rights came without responsibilities, including the obligation to work. See Stuart White, The Civic Minimum (Oxford: Oxford University Press, 2002), 139-140 and Martin Powell, "The Hidden History of Social Citizenship," Citizenship Studies 6(2002), 229-244. However, whatever Marshall's true feelings, his modern day disciples do not believe benefits should be tied to work. See Desmond King, In the Name of Liberalism: Illiberal Social Policy in Britain and the United States (Oxford: Oxford University Press, 1999) and Nancy Fraser and Linda Gordon, "Civil Citizenship against Social Citizenship: On the Ideology of Contract-Versus-Charity," in Bart van Steenbergen, ed., The Condition of Citizenship (London: Sage, 1994), chap. 8.

    [4] YouGov/Daily Telegraph Poll, May 2, 2007.

    [5] Nothing else rose above 13%.

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