The government has proposed increasing the minimum wage to 11.89 euros an hour. According to some economists, this will result in employment losses. According to Bas Jacobs, professor of Public Economics at Erasmus School of Economics, the cabinet is risking employment losses for low-wage workers with this hike.
Consequences of a minimum wage increase
Today's minimum wage is still a monthly payment of around 10 to 11 euros per hour - depending on the duration of a full-time working week. This increase in the minimum wage was on practically every political party's agenda, and hence was predictable. According to a Bureau for Economic Policy Analysis (CPB) study of the coalition agreement released on Tuesday, the intervention might result in the loss of many tens of thousands of jobs for low-skilled and vulnerable people. Around 0.4% of total employment, or 30,000 jobs, will be lost as a consequence of the wage hike.
Adjustment rationale
According to Professor Jacobs, the government is taking a risk with this increase that low-wage people would lose their employment. While there is a lot less dangerous alternative to assist low-income individuals. 'You may also allow them to pay less tax or even refund it.' Jacobs contends that the rise in the minimum wage is also a hidden tax. Common sense dictates that this increase must be borne by a group of individuals. This money may be gathered from a variety of sources. 'From stockholders, who earn less profit,' Jacobs said. 'Consumers, who must pay a higher price for the goods. Or from other workers who get lower salary increases. They compensate employees with a greater minimum salary.'
Jacobs feels that it is preferable for the government to retain control of such a redistribution effort. 'Of course, it's more appealing to imagine that you can shake a large money tree without injuring anybody. With the allowances scandal, it was discovered that reimbursing individuals via the tax system is extremely complicated. Individuals get entangled in the systems or are afraid to seek for benefits out of fear of being pursued by the government. Then you (i.e. the government) accept the possibility of unemployment as a given, since you are unable to reach low-income populations via the tax system.'
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