Hostname: page-component-586b7cd67f-rcrh6 Total loading time: 0 Render date: 2024-11-27T04:21:44.011Z Has data issue: false hasContentIssue false
  • English
  • Français

UNDERSTANDING THE MINIMUM WAGE: POLITICAL ECONOMY AND LEGAL FORM

Published online by Cambridge University Press:  23 April 2019

Zoe Adams
Get access

Abstract

This article explores how the legal system has constructed, over time, the concept of the “wage”. Drawing on insights from classical political economy it contrasts a conception of the wage as the cost of social reproduction (a “social wage”), with the neoclassical notion of the wage as the price of a commodity (a “market wage”) that we see embedded in legal and political discourse today. Drawing on historical sources, it explores how these competing ideas of the wage have been reconstructed in juridical language in case law and legislation over time, exploring at the same time the impact of this process on the relationship between minimum wages and tax credits. This analysis is then used to shed light on the conception of the wage embedded in the National Minimum Wage Act 1998, providing a critical re-evaluation of the “National Living Wage” introduced in 2016.

Keywords

labour lawprivate laweconomic theoryminimum wagescontract of employmentlaw and economics
Type
Articles
Information
The Cambridge Law Journal , Volume 78 , Issue 1 , March 2019 , pp. 42 - 69
Copyright
Copyright © Cambridge Law Journal and Contributors 2019 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

Junior Research Fellow, King's College, Cambridge.

References

1 Outside the economic field, the idea of a “living wage” has been discussed extensively. For different perspectives, see Sen, A., Development as Freedom (Oxford 1999)Google Scholar; Ryan, J.A., A Living Wage: Its Ethical and Economic Aspects (London 1915)Google Scholar.

2 Neoclassical economics super-ceded classical political economy, but the relevance of the latter for legal purposes remains. This is so, not least, due to its influence on minimum wage legislation during the twentieth century (see below), and given the continued relevance of these arguments to present legal forms. For examples of renewed interest in the ideas of the classical economists, see: Boucoyannis, D., “The Equalizing Hand: Why Adam Smith Thought the Market Should Produce Wealth Without Steep Inequality” (2013) 11 Perspectives on Politics 1051CrossRefGoogle Scholar; Kaufman, B., “Adam Smith's Economics and the Modern Minimum Wage Debate: The Large Distance Separating Kirkcaldy from Chicago” (2016) 37 Journal of Labor Research 29CrossRefGoogle Scholar; Levrero, E.S., “Marx on Absolute and Relative Wages and the Modern Theory of Distribution” (2013) 25 Review of Political Economy 91CrossRefGoogle Scholar.

3 For a discussion of the importance of concepts in shaping legal outcomes, see J. Fudge, “Modern Slavery, Unfree Labour and the Labour Market: The Social Dynamics of Legal Characterization” [2018] S. & L.S. DOI:10.1177/0964663917746736; S. Deakin, “Juridical Ontology: The Evolution of Legal Form”, available at <http://dx.doi.org/10.12759/hsr.40.2015.1.170-184> (accessed 28 February 2016).

4 Dobb, M. and Dobb, M.H., Theories of Value and Distribution since Adam Smith: Ideology and Economic Theory (Cambridge 1975)Google Scholar, ch. 7; Hicks, J., The Theory of Wages (Berlin 1963)CrossRefGoogle Scholar, ch. 1.

5 Tucker, E., “Renorming Labour Law: Can We Escape Labour Law's Recurring Regulatory Dilemmas?” (2010) 39 Industrial Law Journal 99CrossRefGoogle Scholar.

6 J. Clark, “Minimum Wages” [1913] Atl.Mo. 289, at 292.

7 Ibid.

8 Tucker, “Renorming Labour Law”, note 5 above.

9 Clark, “Minimum Wages”. See the criticisms in Marshall, A., Principles of Economics, 8th ed. (London 1920)Google Scholar.

10 Manning, Alan, Monopsony in Motion: Imperfect Competition in Labor Markets (Princeton 2003)Google Scholar.

11 Bruce Evan Kaufman, Labor Law and Employment Regulation: Neoclassical and Institutional Perspectives (July 2008). Andrew Young School of Policy Studies Research Paper No. 08-27. Available at SSRN: https://ssrn.com/abstract=1260837 or http://dx.doi.org/10.2139/ssrn.1260837; Tucker, “Renorming Labour Law”, note 5 above.

12 Manning, Monopsony in Motion, note 10 above.

13 Picchio, A., Social Reproduction: The Political Economy of the Labour Market (Cambridge 1992)Google Scholar; Dobb and Dobb, Theories of Value and Distribution; Boucoyannis, “The Equalizing Hand”; Stirati, A., The Theory of Wages in Classical Economics: A Study of Adam Smith, David Ricardo, and Their Contemporaries (Cheltenham 1994)Google Scholar.

14 Picchio, Social Reproduction. There are differences between these scholars’ theory of the labour market, and their notions of the “market” and “natural” wage. For the purposes of this paper, there is sufficient agreement between them to make it worthwhile discussing their contributions in combination.

15 Levrero, E.S., “Some Notes on Wages and Competition in the Labour Market” (2011) 1 Sraffa and Modern Economics 361Google Scholar; Levrero, “Marx on Absolute and Relative Wages”.

16 Boucoyannis, “The Equalizing Hand”.

17 See also Ricardo, D., On the Principles of Political Economy, and Taxation (John Murray 1821)Google Scholar, ch. IV, 366, 369.

18 A. Smith, The Wealth of Nations [1776] (na 1937), Book I, ch. VIII, 77.

19 Levrero, “Some Notes on Wages”, p. 370; ibid., Book I, ch. X, p. 111.

20 Smith, The Wealth of Nations, Book I, ch. VIII, p. 77. See also the discussion of collective bargaining in determining the “natural” wage floor in Marx: Levrero, “Marx on Absolute and Relative Wages”.

21 Ricardo, On the Principles of Political Economy, p. 93.

22 Ibid., at pp. 93, 99; Smith, P., “Comment: ‘Abstentionism’ and ‘Collective Laissez-Faire’: Two Distinct Concepts” (2015) 44 I.L.J. 384Google Scholar, at 385; Malthus, T.R. and Pullen, J., TR Malthus: Principles of Political Economy, vol. 2 (Cambridge 1989), 240Google Scholar.

23 Marx, K., “Instructions for the Delegates of the Provisional General Council” (1866) 20 CW 190Google Scholar. Perhaps the best summary of Marx's view on wages can be found in Outlines, where he expressly engages with the historical dimension to the wage rate, rejecting any “mechanical” relationship between supply and demand: Engels, F., “Outlines of a Critique of Political Economy” (1844) 1 Deutsch-Französische JahrbücherGoogle Scholar.

24 Picchio, Social Reproduction.

25 Webb, S., “The Economic Theory of a Legal Minimum Wage” (1912) 20 J.Pol.Econ. 973CrossRefGoogle Scholar.

26 Smith, The Wealth of Nations, Book V, ch. II, Article III.

27 Ricardo, On the Principles of Political Economy, p. 93; Turgot, “Reflections on the Formation and Distribution of Wealth” [1793] History of Economic Thought Books III, 288; Steuart, J., An Inquiry into the Principles of Political Oeconomy: Being an Essay on the Science of Domestic Policy in Free Nations (London 1767), vol. 2, 270Google Scholar; Smith, The Wealth of Nations, pp. 66–67.

28 Smith, The Wealth of Nations, p. 82; see also Marx's comments to similar effect: Marx, K., Capital, vol. I (London 1867), 649Google Scholar.

29 This practice was dubbed “parasitic” by the Webbs. See the discussion in Kaufman, B.E., “Sidney and Beatrice Webb's Institutional Theory of Labor Markets and Wage Determination” (2013) 52 Industrial Relations: A Journal of Economy and Society 765Google Scholar.

30 Smith, The Wealth of Nations, p. 80.

31 This was a central component in the Webb's campaign for the social wage in the late nineteenth and early twentieth centuries: B.E. Kaufman, “How a Minimum Wage Can Improve Efficiency Even in Competitive Labor Markets: The Webbs and the Social Cost of Labor”, Andrew Young School of Policy Studies Research Paper Series No. 08-16. Available at SSRN: https://ssrn.com/abstract=1239002. Webb, Sidney, “The Economic Theory of a Legal Minimum Wage” (1912) 20 Journal of Political Economy 973CrossRefGoogle Scholar.

32 Marx draws this distinction expressly: Marx, Capital, pp. 171–73. See also Dobb and Dobb, Theories of Value and Distribution, pp. 52–53; and Bonar, J., “The Value of Labor in Relation to Economic Theory” (1891) 5 Q.J.Econ. 137CrossRefGoogle Scholar at p. 146.

33 Kaufman, “Adam Smith's Economics”.

34 Smith, The Wealth of Nations, ch. 5, pp. 71, 83; Ricardo, On the Principles of Political Economy, and Taxation, pp. 24, 93; discussed at length in Dobb and Dobb, Theories of Value and Distribution, ch. 3. For Marx's in-depth discussion of the content of the “natural” wage and how it differs from the price of the commodity, labour power, see Marx, Capital, p. 171; Marx, K., Wage-Labour and Capital (Cabin John, MD 2008), 45Google Scholar; Marx, Karl and Engels, Friedrich, Collected Works of Karl Marx and Frederick Engels. Volume 3 Marx and Engels, 1843-1844 (London 1987)Google Scholar; discussed in Levrero, “Marx on Absolute and Relative Wages”. Marx refers not to prevailing population levels, however, but to the prevailing supply of labour, and this is also true of Ricardo (at p. 93). See Torrens, R., An Essay on the External Corn Trade: With an Appendix on the Means of Improving the Condition of the Labouring Classes (London 1829), 62Google Scholar.

35 Smith, The Wealth of Nations, ch. 5, pp. 71, 83; Ricardo, On the Principles of Political Economy, pp. 24–25.

36 Smith, The Wealth of Nations, Book I, ch. 10, p. 61.

37 See also Marx, “Instructions for the Delegates”.

38 Smith, The Wealth of Nations, Book I, ch. X, p. 62.

39 Polanyi, Karl, The Great Transformation: The Political and Economic Origins of Our Time, 2nd ed. (Boston 2002)Google Scholar.

40 Picchio, Social Reproduction. Harvey, M. and Geras, N., Inequality and Democratic Egalitarianism: Marx's Economy and Beyond and Other Essays (Oxford 2018)Google Scholar.

41 Deakin, S., “What Exactly Is Happening to the Contract of Employment? Reflections on Mark Freedland and Nicola Kountouris's Legal Construction of Personal Work Relations” (2013) 7 Jerusalem Rev.Leg.Stud. 135, at p. 143Google Scholar.

42 J. Fudge, “The Future of the Standard Employment Relationship: Labour Law, New Institutional Economics and Old Power Resource Theory” [2017] J.I.R. DOI: 10.1177/0022185617693877.

43 Picchio, Social Reproduction; Fudge, J., “Feminist Reflections on the Scope of Labour Law: Domestic Work, Social Reproduction, and Jurisdiction” (2014) 22 Fem.L.S. 1Google Scholar.

44 Dukes, R., The Labour Constitution: The Enduring Idea of Labour Law (Oxford 2014)CrossRefGoogle Scholar.

45 Deakin, “Juridical Ontology”.

46 English minimum wage law can be traced back prior to the emergence of the modern labour market. But for the purposes of this article, the Trade Board Act can be seen as the first attempt at “labour market regulation” in the sense in which it is understood today. For a background, see Deakin, S. and Green, F., “One Hundred Years of British Minimum Wage Legislation” (2009) 47 British Journal of Industrial Relations 205CrossRefGoogle Scholar.

47 S. Webb and B. Webb, Industrial Democracy, vol. 2 (London 1897).

48 9 Edward VII c. 22, s. 1(2), emphasis added.

49 HL Deb. vol. 2 cols. 974–1016 (30 August 1909), 1007: “The idea, therefore, is not so much to raise the standard of wage as to fix a minimum wage, raising the price paid by the bad employer to the level of that paid by the good employer.” See also HC Deb. vol. 457 cols. 1031–69 (4 November 1948), 1034.

50 Only in 1918 was this extended to minimum piece-time rates and rates for time spent at the workplace waiting for work: 8 & 9 George V c. 32.

51 HC Deb. vol. 4 col. 350 (28 April 1909).

52 Wells v Foster (1841) 151 E.R. 987; 8 Meeson & Welsby 149, 152. Similar views are expressed in Liverpool Corporation v Wright (1858) 70 E.R. 461; (1859) John. 359, 369 referring to the fees paid in place of a salary.

53 For an example of how this operated in practice, see Skailes v Blue Anchor Line [1911] 1 K.B. 360, 365.

54 Saunders v Jones (1877) 7 Ch. D. 435.

55 Gordon v Jennings (1882) 9 Q.B.D. 45.

56 Workmen's Compensation Act 1897, sch. 1.

57 Abraham Coal Company [1903] A.C. 306; see also Great Northern Railway Company v Dawson [1905] 1 K.B. 331.

58 Wild v John Brown Ltd. [1919] 1 K.B. 134 (not applicable on the facts). For further limits, see Logan v Shots Ltd. [1919] S.C. 131, separating “earnings” as a worker, and profit as a “contractor” obtained as part of the same job.

59 See e.g. Ex parte HV McKay (Harvester Case) (1907) 2 C.A.R. 1, 3.

60 Roberts v Hopwood [1925] A.C. 578, at [612], per Lord Wrenby.

61 Ibid.

62 France v James Coombes & Co [1929] A.C. 496, per Lord Warrington of Clyffe.

63 France, pp. 505–06.

64 France, pp. 506–07; see also, in relation to the Agricultural Wages Act, Pockney v Atkinson [1930] 1 K.B. 197; see particularly pp. 204, 209–10, per Lord Hewart C.J.

65 HC Deb. vol. 231 cols. 2421–2503 (15 November 1929), particularly col. 2471.

66 (1938) Geo.VI, c.70.

67 HC Deb. vol. 361 cols. 154–85 (22 May 1940), 155, per Mr. Atlee.

68 The Emergency Powers Act (1940) required all citizens to place “themselves, their service and their property” at the Government's disposal.

69 HC Deb. vol. 361 cols. 154–85 (22 May 1940), esp. col. 156.

70 Section 3.

71 Section 13.

72 Section 11(1).

73 Lucas, R., “The Wages Act 1986: Some Reflections with Particular Reference to the Licensed Residential Establishment and Licensed Restaurant Wages Council” (1990) 10 The Service Industries Journal 320, 322CrossRefGoogle Scholar.

74 Official Report, 19 March 1985; vol. 75, c. 817.

75 Employment Committee, Wages Councils: Together with the Proceedings of the Committee (Her Majesty's Stationery Office 1985).

76 Lucas, “The Wages Act 1986”, p. 322.

77 Ibid.

78 Social Security Act 1986, Part II, and SI 1987/1793.

79 HC Deb. vol. 100 col. 814 (1 July 1986), per Ms. Short.

80 HC Deb. vol. 80, col. 35 (3 June 1985).

81 HC Deb. vol. 806 cols. 262, 264–65 (10 November 1970).

82 Department of Employment 1988.

83 See the discussion in Lourie, J., “A Minimum Wage” (1995) 97 House of Commons Library, Research Paper 95Google Scholar.

84 Treasury, , “Tackling Poverty and Making Work Pay: Tax Credits for the 21st Century” (2000) 6 The Modernisation of Britain's Tax and Benefit SystemGoogle Scholar.

85 Ibid., at p. 17. For the current tax-credit regime see: Welfare Reform Act 2012 Part I and the Universal Credit Regulations 2013, and Universal Credit (Work Allowance) Amendment Regulations 2015, SI 2015/1649. For a commentary, see Puttick, K., “‘21st Century Welfare’ and Universal Credit: Reconstructing the Wage-Work-Welfare Bargain” (2012) 41 I.L.J. 236Google Scholar.

86 Tax Credits Act 2002 and Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002, SI 2002/05.

87 For a discussion, see Simpson, B., “Implementing the National Minimum Wage – the 1999 Regulations” (1999) 28 I.L.J. 171Google Scholar; Simpson, B., “The National Minimum Wage Five Years On: Reflections on Some General Issues” (2004) 33 I.L.J. 22Google Scholar.

88 See Low Pay Commission, “First Report of the Low Pay Commission”, 15–19; see also HC Deb. vol. 303 cols. 162–239 (16 December 1997).

89 It is currently set for completion in December 2018: https://www.gov.uk/government/publications/universal-credit-transition-to-full-service (accessed 24 April 2018). Universal Credit Regulations 2013/356.

90 M. Pennycook and M. Whittaker, “Conditions Uncertain: Assessing the Implication of Universal Credit in-Work Conditionality”, 4, available at <http://www.resolutionfoundation.org/app/uploads/2014/08/Conditions_Uncertain.pdf> (accessed 29 August 2017).

91 Welfare Reform Act 2012, s.4(1), and ss. 13,14,17, 18 in particular. See parallel provisions in Universal Credit Regulations 2013.

92 National Minimum Wage (Amendment) Regulations 2016/68.

93 Grover, C. and Stewart, J., “Speenhamland: In-Work Relief at the Dawn of Modernity”, The Work Connection (London 2002)CrossRefGoogle Scholar, available at <http://link.springer.com/chapter/10.1057/9780230510425_6> (accessed 26 February 2016); Interview with George Osborne, “Chancellor George Osborne's Summer Budget 2015 Speech – GOV.UK”, available at <https://www.gov.uk/government/speeches/chancellor-george-osbornes-summer-budget-2015-speech> (accessed 7 August 2017).

94 For a discussion, see C. D'Arcy and G. Kelly, “Analysing the National Living Wage”, available at <http://www.resolutionfoundation.org/app/uploads/2015/07/RF-National-Living-Wage-briefing.pdf> (accessed 2 July 2017). The 60% target is the international standard required by bodies such as the European Committee on Social Rights, referred to as the “decency threshold”. The Bain review that led to the NLW came up with the 60% figure having analysed how this would place the UK vis-à-vis its international competitors.

95 Ibid.; Living Wage Foundation, “What Is the Real Living Wage? Living Wage Foundation” (2016), available at <https://www.livingwage.org.uk/what-is-the-living-wage> (accessed 2 July 2017).

96 Section 3.

97 SI 2015/62.

98 SI 2016/68.

99 How far this was achieved in practice, however, is an open question. The point being made refers to the conceptual structure of the Wages Councils Act, and thus, its potential as a mode of regulating pay. That different age groups are currently paid a different rate – but still incur broadly similar living costs – further shows that this “living wage” is not seen to perform a subsistence function in the same way as had the minimum rates of remuneration envisaged by the Wages Councils Act where, through collective bargaining, rates were expected to vary as between trades, classes of workers and geographical locations.

100 Department of Business Innovation and Skills, “Low Pay Commission Remit 2016”, available at <https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443328/BIS-15-409-NMW-Low-Pay-Commission-Remit-2016.pdf> (accessed 7 August 2017).

101 Hayes, L.J.B., “Care and Control: Are the National Minimum Wage Entitlements of Homecare Workers at Risk under the Care Act 2014?” (2015) 44 I.L.J. 492Google Scholar.

102 Ibid.

103 Ibid.

104 These provisions do not apply to “output work” or “unmeasured work”, however, leaving employers free contract-out of some of the protection of the Act by adjusting the payment system.

105 Regulation 34 expressly excludes time travelling between home and workplace. This has harsh implications in certain industries, as can be seen in: Aslam v Uber BV [2017] I.R.L.R. 4; see also Thera East v Mr. J Valentine Appeal No. UKEAT/0325/16/DM where the court left it to the contract to decide if travel time was “work” that earned a right to be paid. On overnight lay-overs: see Baxter v Titan Aviation Ltd. (unreported), 30 August 2011 (EAT).

106 Regulation 21(5).

107 Regulation 21(5).

108 For particularly restrictive readings of this, see South Manchester Abbeyfield Society Ltd. v Hopkins [2011] I.C.R. 254; [2011] I.R.L.R. 300 (EAT); Hughes v Jones (t/a Graylyns Residential Home) Appeal No. UKEA/T/0159/08MAA EAT.

109 Section 217.

110 South Holland District Council v Stamp EAT/1097/02

111 For a discussion of this, see Rodgers, L., “The Notion of Working Time” (2009) 38 I.L.J. 80Google Scholar.

112 Walton v The Independent Living Organisation Ltd. Appeal No. EAT/731/01, at [12], per Holland, J.

113 Ibid., at para. [3].

114 Focus Care Agency Ltd. v Roberts [2017] UKEAT 0143_16_2104, 31; see also Whittlestone v BJP Home Support Ltd. [2014] I.C.R. 275 (EAT).

115 See e.g. Edinburgh Council v Lauder (2012) UKEATS/0048/11/BI; Hughes, Appeal No. UKEA/T/0159/08MAA EAT and South Manchester [2011] I.C.R. 254; [2011] I.R.L.R. 300 (EAT). These cases were decided before Focus Agency, discussed below, although it does not seem that the outcome would change.

116 Whittlestone [2014] I.C.R. 275 (EAT), at [53].

117 Focus Care [2017] UKEAT 0143_16_2104, at [44].

118 Abbeyfield Wessex Society Ltd. v Edwards (2017) Appeal No. UKEAT/0256/16/BA.

119 Focus Care [2017] UKEAT 0143_16_2104, at [42].

120 The finding in Focus Care [2017] UKEAT 0143_16_2104 in relation to the care-sector has been questioned in Royal Mencap Society v Tomlinson-Blake [2018] EWCA Civ 1641.

121 Focus Care [2017] UKEAT 0143_16_2104, at [35]–[37].

122 Royal Mencap Society v Tomlinson-Blake and Shannon v Rampersad [2018] EWCA Civ 1641.

123 Ibid.

124 “Royal Mencap Society v. Tomlinson-Blake”, available at <https://www.dentons.com/en/insights/newsletters/2018/july/31/uk-employment-law-roundup/uk-employment-law-round-up-july-2018/royal-mencap-society-v-tomlinson-blake> (accessed 3 November 2018).

125 Royal Mencap Society v Tomlinson-Blake [2018] EWCA Civ 1641.