The Gross Underpayment Of The Minimum Wage


We’re told that it’s outrageous, an absolute scandal, that some employers don’t pay the minimum wage. That we could regard what willing employees turn up to work for as being their own business isn’t an argument which passes muster these days, more’s the pity. So, let’s ignore that argument and ponder on whether this is in fact a scandal.

Well, no, it doesn’t even rise to a scandalette.

A record £15.6m worth of underpayment to UK workers has been discovered by the government in the past year.

In total, 200,000 workers missed out on being paid at least the minimum wage rate – the highest number since the statutory rate was introduced in 1999.

Social care, commercial warehousing and the gig economy were the sectors most likely to underpay staff, HMRC said.

The point being that this is trivia in the context of the size of the economy:

Ministers have been urged to impose tougher penalties on companies that pay their staff below the minimum wage after it emerged that the government fined companies only £14m in a year when rogue employers underpaid their staff by £15.6m.

It is a criminal offence not to pay the minimum wage, and the maximum fine is 200% of every penny underpaid. Firms found in breach must also repay staff all the money they are owed.

100% fines look just fine to be honest. It’s how likely you are to be caught times the fine or punishment which is the incentive not to offend. If punishment happens to 100% of the incidence then even a 10% fine would be sufficient incentive not to underpay. The very argument that fines must be greater is proof that those making it think the State is pretty rubbish at uncovering the incidence.

However, consider it as a whole.

200,000 people. Be careful of that, as it might include things like care workers not being paid while they’re sleeping. Or adjustments that should or should not happen because of uniforms – both actual cases. But that still only 0.6% of the total workforce of around 30 million. We’re getting into rounding errors not commonplaces. And if we go to the money part. Total wages paid could be put at £660 billion (30 million working, median wages of £22k, so a large underestimate) at £15 million underpayment is 0.002%.

To put that into context, it’s not unusual for some 50 to 100 homicides in a year to lead to no suspects being charged. There are around 500,000 deaths in any one year. The failure to solve a murder is thus some five times worse than this incidence of underpaid wages across the economy. Seems pretty good for government work to be honest. And most certainly rather better than the burglary clean up rate…..